WeWork goes public through SPAC

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More than two years after the failed initial public offering, WeWork will begin public trading on the New York Stock Exchange on Thursday after merging with a special purpose acquisition company.

After investors expressed concerns about its business model and corporate governance and its founder and then CEO Adam Neumann, the office leasing company cancelled its 2019 IPO plan.

The plan to merge with BowX Acquisition Corp. was first announced in March. According to reports, the transaction valued the company at approximately US$9 billion.

The valuation has dropped significantly from 2019, when WeWork was initially valued at US$47 billion by SoftBank Group. As news of the company’s financial status came out and investor demand weakened, its valuation slowly declined.

“You said this is a dramatic story,” WeWork executive chairman Marcelo Kraul told CNBC’s “Squawk Box” on Thursday. “Of course, this is a story in which many people write documentaries. This is the end of WeWork. The resistance and persistence of these people is incredible. This company is here, stronger than ever, and there is no doubt that we’ More milestones will be celebrated.”

What went wrong

WeWork’s troubles began in August 2019, when the company’s IPO documents showed that it had lost $1.9 billion in the previous year and was expected to run out of remaining cash. A shocking report published in the Wall Street Journal in September raised concerns about how Neumann manages the company, including possible illegal activities.

Neumann resigned as CEO that month. CNBC reported in October that he will receive a package worth up to $1.7 billion to leave WeWork and give up his voting rights. Real estate executive Sandeep Mathrani later assumed the role of CEO.

“WeWork is an amazing brand, and if someone gives you a super brand to turn things around, you will have to agree,” Marcelani told CNBC’s “Squawk Box.”

After the IPO failed, WeWork’s troubles continued. In November of that year, Reuters reported that the New York State Attorney General was investigating the company, including whether Neumann used self-deal to enrich itself.

This includes reports that Neumann purchased the “We” trademark and plans to charge WeWork $6 million to transfer it. Self-dealing means that someone acts in the best interests of oneself and not the client.

Bloomberg also reported that month that WeWork was facing review by the US Securities and Exchange Commission for information disclosed to investors before the IPO failed.

The failure of the IPO and the impact of the pandemic led the company to conduct multiple rounds of layoffs at the end of 2019 and 2020. With Covid-19 closing the global office space, WeWork has also suffered huge losses.

Kraul told Squawk Box that everyone “plays an important role” and Neumann is commendable. He is the visionary who came up with this idea.

SoftBank Acquisition

SoftBank made its first multi-billion dollar investment in WeWork in 2017 through its $100 billion Vision Fund, which also funded Uber and other Silicon Valley startups. The Japanese technology giant invested $18.5 billion in WeWork before the IPO failed.

In October 2019, SoftBank agreed to spend US$10 billion to acquire an 80% stake in WeWork. As part of the transaction, SoftBank also stated that it would purchase $3 billion in stocks from investors and employees, but cancelled these plans in April 2020, partly because of the government’s investigation into the company.

SoftBank gradually reduced its valuation of WeWork to US$7.3 billion at the end of December 2019 and to US$2.9 billion at the beginning of 2020.

In an earnings report later that year, SoftBank CEO Sun Zhengyi stated that his multi-billion dollar investment in the company in WeWork was “stupid”.

“We failed to invest in WeWork, and I have admitted many times that I was stupid,” he said, according to FactSet’s transcription of the phone.

Claure told CNBC’s “Squawk Box” that Sun Zhengyi was “excited” about the company’s listing.

“Two years ago, the value of WeWork was zero, and the fact that we increased it from zero to $8 billion to $9 billion is great,” Claure said on the “Squawk Box.”

WeWork’s return

As more workers turn to mixed or permanent remote work, the pandemic’s resurgence has accelerated the demand for flexible workspaces.

In March of this year, WeWork agreed to merge SPAC with BowX Acquisition for US$9 billion, which was completed on October 20. As part of the transaction, SoftBank retained a majority stake in the company, but agreed to lock it up for one year. According to a person familiar with the matter, Reuters had previously reported that.

SPAC, also known as a blank check company, its sole purpose is to raise funds through an IPO and use the funds to acquire existing companies.They have soared in recent months because celebrities like Shaquille O’Neal Follow the trend. Companies such as Virgin Galactic and Lucid Motors have used SPAC to go public, but their structure has also been reviewed by the US Securities and Exchange Commission.

BowX Acquisition raised $420 million when it went public in August 2020. WeWork’s transaction code is WE.

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