In what can only be described as a major blow, WeWork (ticker: WE) has succumbed to a string of ill-advised decisions, exorbitant lease agreements, and the relentless economic ramifications of the Covid-19 pandemic. Even the formidable SoftBank CEO, Masayoshi Son, was unable to salvage the company from its demise.
The implications of this failure are significant for SoftBank and Son. With a 74% ownership stake in WeWork's stock, they now face a devastating loss. The company's shares have plummeted by over 99% this year, ultimately rendering them practically worthless. While Son has demonstrated a brilliant investment track record with ventures like Alibaba (BABA), his decision to back WeWork stands as one of his most regrettable choices.
The story of WeWork is an intricate and lengthy one. Originally established in 2010 by entrepreneur Adam Neumann, the company garnered immense attention when it achieved a staggering $47 billion valuation. However, Neumann's grand visions for the company were never fully realized. In 2019, WeWork's initial public offering was abruptly withdrawn due to investor reservations surrounding mounting losses, an inflated valuation, and allegations of inadequate corporate governance practices.
In light of the impending bankruptcy filing, Neumann expressed his disappointment. "It has been disheartening for me to observe from the sidelines since 2019 as WeWork failed to capitalize on a product that has never been more relevant," he lamented in a statement. He remains hopeful that with the appropriate strategies and a formidable team, a successful reorganization can lead WeWork towards future triumphs.
Following the failed IPO, SoftBank presented a series of financial rescue plans, ultimately procuring a majority of WeWork's equity while simultaneously depriving Neumann of voting control over his remaining shares in the company.
WeWork eventually entered the public market in October 2021, amidst the throes of the pandemic, through a merger with a special purpose acquisition company known as BowX Acquisition Corp. Initially valued at $9 billion, it briefly appeared to be an unexpected victory for SoftBank.
Unfortunately, going public did little to resolve WeWork's underlying issues. The company was ultimately burdened by a combination of the work-from-home trend amplified by the pandemic and financial strain stemming from higher interest rates.
SoftBank's Attempt to Save WeWork Falls Short
In an effort to save WeWork, SoftBank implemented a recapitalization plan in March 2023. This plan aimed to reduce the company's debt by converting a portion of WeWork's borrowings into equity. The deal successfully canceled or converted $1.5 billion worth of debt, including $1 billion held by SoftBank. However, this proved to be insufficient.
WeWork's quarterly financial results in August included a concerning warning about the company's ability to remain a going concern. As of June 30, WeWork still had $2.9 billion in long-term debt and $13.3 billion in long-term lease obligations. Despite a 4% increase in revenue from the previous year, amounting to $844 million in the June quarter, the company experienced a loss of $397 million, narrowing from $634 million in the same period last year.
Now, under the protection of the bankruptcy courts, WeWork's creditors will attempt to salvage its underlying business of short-term office rentals. This is not the first time debt holders have tried to address the issues surrounding WeWork.
The failure of WeWork's stock will undoubtedly leave its mark on the commercial real estate market and further damage the reputation of founder Neumann and SoftBank, its primary ally.
During this challenging period, WeWork plans to rationalize its commercial office lease portfolio while prioritizing business continuity and the delivery of excellent services to its members. Global operations are expected to continue as usual.
WeWork shares were halted during Monday's trading session pending news, and SoftBank declined to comment on the matter. The firm is set to release its quarterly results on Thursday.