The owners of WeWork have decided to push forward with an IPO roadshow starting this coming week, according to media reports, but that sale may be at a valuation as much as 79 percent below what shares in the company sold for earlier this year.
CEO Adam Neumann and his team at The We Company are considering selling shares to the public at a valuation of $10 billion to $12 billion, according to a report by Reuters citing sources familiar with the share offering, as investors continue to shy away from a company which lost $1.67 billion for the 12 months through June 30 of this year, and which is governed through some non-conventional management approaches.
In an SEC filing on Friday, the parent firm of WeWork also introduced some changes to its corporate governance, which could help to assuage investor concerns regarding Neumann’s tech start-up style grip on the company as it scrambles to kindle interest in its shares.
Softbank Props Up Discounted IPO
The We Company is continuing to fill in the blanks regarding its offering, including revealing last week that its shares will be listed on the NASDAQ exchange. With the road show starting this coming week the company plans to commence trading of its stock during the week of 23 September, according to a Wall Street Journal account.
The cut-rate stock offering, which has yet to be officially confirmed, comes after reports earlier this month had indicated the We Company would seek to list at a valuation of between $20 and $30 billion. Last week, news accounts relying on sources familiar with the We Company’s plans pointed to a valuation of $15 billion to $20 billion before this latest readjustment.
The mark-down for the co-working pioneer presents challenges for its largest backer, Softbank, which earlier this year invested $2 billion in the company at a $47 billion valuation. Despite the haircut, the firm led by venture capital guru Masayoshi Son is willing to prop up the public offering by purchasing at least $750 million in The We Company stock via the offering, according to an account by the Wall Street Journal.
Governance Changes Announced
In a move which may help reassure investors regarding the extraordinary level of control given to Neumann under a prospectus filed last month, the We Company filed an amended S-1 form with the US Securities and Exchange Commission (SEC) on Friday which adjusted the CEO’s voting rights and boosted the decision-making power of the board of directors.
Under the revised proposal, Neumann’s stock, which he holds through The We Company’s multi-class share structure, would hold only 10 ten times the voting rights of ordinary shares – down from the 20-times rights that the CEO had exerted previously.
The serviced office provider also took away some rights granted to Neumann’s wife, including eliminating her from a key role in choosing a potential successor CEO should her husband die or become incapacitated in the next decade. Under the new proposal, no member of Neumann’s family would be seated on the board apart from the CEO, and a successor would be selected by the board.
The new rules also limit potential share sales by the CEO to no more than 10 percent of his stake during the second and third year following the IPO, reinforcing an early stipulation that would have locked Neumann in for just one year after the stock listing, according to the Wall Street Journal.
Neumann’s actions as CEO, which include buying real estate which he later rented to the company and taking $740 million out of WeWork by selling shares or taking loans backed by his We stock have given investors pause regarding allowing a high level of control to an executive that has displayed a willingness to dance around traditional conflict of interest concerns.
Debt Deal Sweetened
The We Company is wooing investors in a drive to bring in cash needed while it struggles to establish profitability, and this past week the company also took some steps to shore up a $6 billion debt offering which it is conducting in tandem with the share sale.
A $2 billion dollar letter of credit, which is part of the two-pronged debt sale, now includes a $750 million to $800 million cash collateralisation, according to a Reuters account, which should provide potential lenders with additional security.
Both the letter of credit and a $4 billion structured debt offering collateralised by cash flows from some of WeWork’s facility leases are contingent on the We Company raising at least $3 billion through its share sale, according to earlier news reports.