The kick off of marketing for an initial public offering of shares in the We Company, the parent of shared office provider WeWork is said to be in doubt as the group’s promoters struggle to win over skeptical investors.
The New York-based pioneer of co-working may now be dropping the valuation for the IPO below $20 billion, according to a report late Sunday in the Wall Street Journal citing sources familiar with the share sale, representing around a 58 percent cut in value for the We Company.
The news of the price cut came just three days after multiple press outlets had reported that the We Company was cutting its valuation from the $47 billion it had achieved in a private share sale to its primary backer, Softbank, earlier this year to a price between $20 and $30 billion.
IPO Could Be Postponed
Some analysts have begun to predict that the share offering may have to be postponed until next year, endangering a $6 billion debt sale arranged last month, as investors struggle to digest the We Company’s losses, which doubled to nearly $1.9 billion last year, and questions over conflicts of interest involving the firm’s CEO Adam Neumann.
Reports last week indicated that a road show marketing We shares could start on Monday, 9 September, however, the company’s management is now said to be meeting with JP Morgan Chase, Goldman Sachs and other banks underwriting the share sale, as well as with potential investors, to discuss ways to ensure adequate demand for the company’s stock, according to the Journal account.
A report filed by Agence France Press, citing sources familiar with the discussion, also indicated that the We Company is targetting a valuation below $20 billion. In a blog post published on Friday, NYU professor Scott Galloway predicted that the company’s IPO would be called off within the next 30 days.
The academic’s prediction came after the We Company’s IPO filing and other disclosures have triggered questions from investors about CEO Adam Neumann having already taken $740 million out of the company he co-founded through sales of shares or borrowing against his stock prior to the IPO.
The We Company earlier this month revealed that it was unwinding an agreement with an entity controlled by Neumann that would have paid the CEO $5.9 million for selling the trademark for “The We Company” to the shared office provider after Galloway had criticised the transaction in media appearances.
Debt Deal in Doubt
The doubts about the We Company’s IPO could spell trouble for a plan for the shared office provider to raise $6 billion through a debt sale and would force the firm to either scale back its expansion or find a new source of funding.
In early August the We Company is said to have reached terms with JP Morgan Chase and other banks to raise money through a $2 billion letter of credit and a $4 billion loan collateralised by the rights to cash flows from WeWork’s long-term leases of office space.
That debt deal, which was reportedly set up to reassure investors that the company had adequate cash reserves to fuel its expansion, is said to be dependent, however, on We raising at least $3 billion through its planned IPO.
According to documents filed in preparation for the IPO, We’s cash and cash commitments dropped to $5.9 billion by the end of March, down by $700 million from the end of last year.
With We having lost more than $1.9 billion in 2018 – a shortfall more than double the amount of red ink it recorded the previous year – without an IPO or other source of new funds, the serviced office provider would have to either improve its financial performance or run out of cash in around three years.