Sep 17, 2019

DealBook: WeWork Delays I.P.O. After Chilly Reception From Investors

By Michael J. de la Merced

DealBook|WeWork Delays I.P.O. After Chilly Reception From Investors
CreditCreditJustin Lane/EPA, via Shutterstock
WeWork, the shared office space giant, was able to gain the backing of some of the world’s top investors, but it received a much colder reception when it tried to pitch its shares on Wall Street.
Facing deep skepticism about its business model and corporate governance, the company has delayed its initial public offering by several months. A person with knowledge of the offering says the stock sale, which was expected to happen in a matter of weeks, may wind up being scrapped entirely.
This week, the company had been expected to begin a road show for the stock offering — where it pitched prospective investors on the deal — two people said. That would have put it on track to begin trading on the Nasdaq stock market by the end of next week.
But at a meeting on Monday, executives and advisers decided to shelve the plans for now after finding little appetite from prospective investors, the people said, asking not to be identified discussing internal deliberations.
In a statement released late Monday night, WeWork’s parent, the We Company, said that it anticipated the offering would be completed by the end of the year.
But a delay — whether for weeks or months — may not allay the concerns of investors who had questioned the valuation of the company. WeWork had been privately valued at $47 billion in January, when SoftBank of Japan made a large investment. But the prospect of going public has focused attention on a business that is deeply unprofitable and will most likely remain so for years.
WeWork has been trying to rescue its public offering in a number of ways. On Friday, the company said it would reduce the power of its co-founder and chief executive, Adam Neumann, amid criticism of the business’s corporate governance.
WeWork is the latest of the so-called unicorns — businesses funded by venture capital firms that are valued at $1 billion or more — to falter. Shares in Uber and Lyft, two other unicorns, dropped significantly after their public offerings this year.
WeWork, the biggest private tenant in Manhattan, leases large amounts of office space and converts it into sleek work areas. Though the company has grown quickly, it remains deeply unprofitable. In the first half of this year, it recorded an operating loss of $1.37 billion and spent $1.5 billion in cash.
Analysts and investors have also said that WeWork has not been forthcoming with detail on profits and occupancy that would give them greater insight into how its properties are performing.
If the initial offering is significantly delayed, WeWork will need to find other ways to raise cash.
Without an infusion of new money, the We Company may have to slow its expansion, which is consuming hundreds of millions of dollars of cash. In the first half of this year, the firm spent $1.5 billion of cash running its business and building out its operations. It had nearly $2.5 billion of cash on its balance sheet at the end of June.
It had anticipated collecting $6 billion from bank financing that was connected to the stock sale — but that money would be available only if the company raised at least $3 billion from the I.P.O.
That financing has not yet been renegotiated, one of the people briefed on the matter said, though it is possible that WeWork eventually strikes a new agreement with the banks.
Peter Eavis contributed reporting.

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