SoftBank pushes WeWork to postpone its contentious IPO

SAN FRANCISCO (BLOOMBERG) - Executives of WeWork and its largest investor, SoftBank, are discussing whether to shelve plans for an initial public offering (IPO) of the money-losing co-working company, said people with knowledge of the talks.

SoftBank is pressing WeWork to postpone the stock offering after investors expressed serious concerns about the business and its corporate governance, said the people, who asked not to be identified because the discussions are private. WeWork had planned to hold a roadshow to promote the offering as soon as this week, an executive told analysts on Wednesday.

The Financial Times reported on SoftBank's position earlier on Monday (Sept 9). Representatives for SoftBank and We Co, the parent of WeWork, declined to comment.

In the span of a few months, WeWork has gone from one of America's most valuable unicorn startups to a punchline in investment circles. Early this year, Goldman Sachs Group pitched WeWork as a US$65 billion (S$89.73 billion) business. Now WeWork advisers are estimating the company is worth about a third of that amount.

SOFTBANK STAKE

SoftBank Group Corp. and its affiliates hold about 29 per cent of WeWork stock, Bloomberg reported last week. That's even more than co-founder and chief executive officer Adam Neumann, though he maintains effective voting control through a three-class share structure.

A low valuation would hit SoftBank Group especially hard. Unlike its affiliate the Vision Fund, which invested just once at about a US$20 billion valuation in early 2017, SoftBank Group kept pouring money into WeWork, most recently in January at a US$47 billion valuation. Overall, SoftBank has invested US$10.65 billion into the New York-based company, which owns or leases office space and then rents it to companies' needing short-term space.

Neumann has been the subject of scrutiny from investors over disclosures in WeWork's IPO paperwork. The company paid Neumann rent and spent US$5.9 million to acquire a trademark he owned, as it lent him money. In recent months, WeWork has sought to address some of its governance issues, including by adding a woman to its board.

 
 
 

CREDIT REQUIREMENT

WeWork has lined up a US$6 billion credit line that is contingent on it raising at least US$3 billion in an IPO, according to its prospectus.

The company is already considering additional financing. WeWork is planning to rely on junk bonds for funding for the foreseeable future, a company executive said in a meeting with analysts, according to a person familiar with the matter.

The executive said WeWork could also explore whole-business securitizations, or the practice of pledging royalties, fees, intellectual property and other key assets as collateral, the person said. Those types of bonds are becoming more popular. They may enable companies with riskier ratings to improve their credit by cutting financing costs and issuing higher-quality bonds.