Adam Neumann’s final WeWork act: helping SoftBank’s SPAC deal – ET RealEstate

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BOSTON | BENGALURU: An unlikely figure helped set the spark for SoftBank Group Corp’s $9 billion deal to take WeWork public.

Adam Neumann, WeWork’s co-founder and ousted chief executive, met in November with the head of the special purpose acquisition company (SPAC) that would go on to clinch a deal with WeWork, according to people familiar with the matter.

Neumann was locked in a fierce legal battle at the time with SoftBank over a $3 billion deal for a portion of his and other investors’ stake in the office space-sharing company.

The introduction between Neumann and BowX Acquisition Corp co-chief executive Vivek Ranadive over a Zoom call was facilitated by a senior UBS Group AG capital markets banker, the sources said. It preceded discussions the SPAC chief had with WeWork.

Neumann played up WeWork’s prospects on the call and the conversation piqued Ranadive’s interest, the sources said.

Ranadive’s SPAC had been looking for an acquisition target after raising $420 million in an IPO in August.

The ensuing deal announced on Friday cushions some of the blow SoftBank has suffered with its investment in WeWork. It has invested at least $18.5 billion in WeWork since 2017, including $6 billion when a fundraising round valued the startup at $47 billion in January 2019.

The sources described the meeting between Neumann and Ranadive on condition of anonymity. Representatives for Neumann, WeWork, UBS and SoftBank declined to comment. Ranadive did not respond to multiple requests for comment.

Neumann, who has kept a low profile since his unceremonious ouster after WeWork’s failed IPO attempt in 2019, has had a contentious relationship with SoftBank.

The Japanese tech investment giant pushed for his ouster before it took over WeWork in a $10 billion rescue financing deal in October 2019. It later backtracked on an agreement to buy $3 billion of WeWork shares from Neumann and other investors, citing criminal and civil investigations into WeWork, the company’s failure to restructure a joint venture in China, and the shift to remote work due to the COVID-19 outbreak.

One week before the case was due to go to trial, SoftBank reached a settlement with Neumann and other investors in February to pay out about half of its original commitment. It did not want the potential legal liability to jeopardize the SPAC deal, the sources said.

Neumann also stands to benefit from the SPAC deal as he still has a roughly 10% stake in WeWork, worth around $790 million.

Limited options

Neumann had no role in the SPAC deal after his discussion with Ranadive, the sources said. Ranadive and his team began discussions with WeWork in December. SoftBank Chief Operating Officer and WeWork Executive Chairman Marcelo Claure led the negotiations on behalf of SoftBank, with SoftBank CEO Masayoshi Son also stepping in, one of the sources said.

WeWork was apprehensive about opting for a traditional IPO following its failed attempt in 2019, and its options for a SPAC deal were limited. BowX was the only SPAC that expressed a serious interest in WeWork, two of the sources said.

Ranadive, a 63-year-old technology executive turned investor and owner of the Sacramento Kings basketball team, said last week WeWork stood to benefit from a shift by many companies to a hybrid model of working that calls for employees to come in to a workplace just a few days a month.

He called the shift a tailwind for WeWork.

The deal was received well by Wall Street, with BowX shares ending trade on Friday up 20% following the merger’s announcement.

WeWork’s valuation was revised down in the final stages of the negotiations. Investors participating in the private investment in public equity (PIPE) transaction managed to drive down WeWork’s valuation in the agreement from $9.9 billion to $9 billion, including debt, the sources said. The size of the PIPE increased to $800 million from $500 million.

Ranadive and the rest of the BowX senior team will receive WeWork shares worth almost $90 million after investing $11.7 million of their own money. They will be restricted from selling these shares for the first year unless certain share price targets are met.



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WeWork in talks to go public through SPAC deal – ET RealEstate

BENGALURU | TOKYO: WeWork is in talks to go public through a merger with a special purpose acquisition company (SPAC) and is also exploring raising funds from private investors, a little over a year after its botched initial public offering (IPO), according to a source familiar with the matter.

The office-sharing startup’s plans for its high-profile IPO imploded spectacularly in October 2019 due to widespread criticism over the office-sharing startup’s business model and its founder Adam Neumann’s management style.

A source directly familiar with the matter said that WeWork had held talks with at least three blank-check firms over the past two months, cautioning that current talks could fall apart.

“We have SPACs approaching us on a weekly basis,” WeWork Executive Chairman Marcelo Claure said at a Bloomberg conference. Claure is also chief operating officer of SoftBank Group Corp, which bailed out the startup.

The Wall Street Journal earlier reported that WeWork was in talks with a SPAC affiliated with Bow Capital Management LLC and a deal could value WeWork at nearly $10 billion.

A spokeswoman for the office-sharing startup confirmed in a statement that the company was exploring options, including a deal with a blank-check firm.

“Over the past year, WeWork has remained focused on executing our plans for achieving profitability. Our significant progress combined with the increased market demand for flexible space, shows positive signs for our business,” the company said.

“We will continue to explore opportunities that help us move closer towards our goals,” it added.

WeWork was valued at nearly $47 billion in 2019 but saw its valuation plummet to roughly $8 billion after SoftBank was forced to extend a life-saving financing lifeline to WeWork.



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WeWork’s revenue dips 8% to $811 million in Q2 FY21 – ET RealEstate

NEW YORK: WeWork Companies LLC’s revenue declined in the third quarter but its cash burn slowed, a company memo showed on Thursday, with management confident the shared-workplace provider can weather the hit to the office sector from COVID-19.

Quarterly revenue slid 8% from the second quarter to $811 million, while the company posted cash burn of $517 million, less than $671 million a quarter ago, WeWork said in a memo to employees seen by Reuters.

WeWork also said it successfully exited 66 locations that were open or were to be opened and that it amended 150 lease arrangements that resulted in an estimated reduction of $1.5 billion in long-term liabilities.

WeWork said member retention improved and renewal rates stabilized with the loss of desks in September at its lowest level since March when COVID-19 shut down businesses around the world and left offices vacant.

The pandemic has accelerated a “seismic shift” in the office sector that has put flexibility – an industry byword for the short-term leases the company embraces – and WeWork at the forefront, the memo signed by Chief Executive Sandeep Mathrani and Chief Financial Officer Ben Dunham said.

“This is our moment, and I know that together, we will continue to define the future of work,” they said.

WeWork said the results, which were reported earlier to holders of its junk bond, showed signs of key metrics stabilizing. Companies with more than 500 employees represented 54% of all members, an increase of “enterprise” clients from 48% in the prior quarter, though overall memberships fell 11%.

The company increased its global footprint to 859 locations and WeWork reported about $3.6 billion of cash and unfunded cash commitments at the end of the third quarter.

The firm dropped “The We Company” name in October, reverting to its WeWork brand to focus on its core office-sharing business, the most significant move since Japanese tech giant SoftBank, its majority owner, installed new management after a disastrous effort to go public in 2019.

The memo said the company was on track to achieve its goals, but did not say whether it would reach profitability in 2021 as it has stated before.

While COVID-19 has hit WeWork’s cash flow, longer-term changes in office usage are seen potentially supporting its business model.

Zach Aarons, co-founder of property-focused venture capital firm MetaProp, said WeWork may be able to withstand the economic downturn better than other office space providers.

The coronavirus pandemic has fueled corporate demand for shorter leases as employees increasingly work from home, which should help WeWork, Aarons said.

Fitch Ratings in October cut WeWork’s bond and credit rating deeper into junk territory on concerns about an industry shift to hybrid workplace models that lead to permanently lower workspace demand.

Fitch sees WeWork attaining modestly positive free cash flow in 2022 after its burn rate slows to about $900 million next year but it may need additional funding beyond a $3.3 billion financing commitment from SoftBank.



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WeWork aims to become profitable in 2021 globally: Sandeep Mathrani, CEO – ET RealEstate

NEW DELHI: Co-working major WeWork will focus on achieving profitable growth globally, including in India, in 2021 by increasing the occupancy level of its real estate portfolio, the company’s CEO Sandeep Mathrani said.

Further, Softbank backed-WeWork will revisit its plan to launch an initial public issue (IPO) only after it becomes profitable, said Mathrani, who became the new CEO in February after the exit of WeWork co-founder and former CEO Adam Neumann.

In a video conference, Mathrani said India is an important market for the US-based firm and has recently invested USD 100 million in WeWork India.

WeWork India’s contribution to global revenue is currently small but it will continue to rise as the country has great potential for flexible workspace business, Mathrani said.

Asked about WeWork’s top priorities for India, he said the global strategy is to achieve profitable growth through increase in occupancy level at all its centres.

“Our priority everywhere globally is profitable growth and streamlining our organisation and real estate portfolio in 2020,” he said, adding that in 2021, the company plans go towards having profitable growth and become EBIDTA positive.

Mathrani said the company has been able to reduce operating cost and cash burn significantly this year by streamlining the organisation and also its real estate portfolio.

The exercise of right-sizing organisations has been completed, while the streamlining of real estate portfolio is also 75 per cent complete, he added.

Mathrani said 65-70 per cent occupancy level is required for break even, which the company had achieved before the outbreak of COVID-19.

He noted that the pandemic has highlighted the importance of de-densification of office space and adoption of hub and spoke model.

He felt that India would benefit from this because of cost advantage.

Mathrani described the WeWork global investment of USD 100 million as a “strategic move” that shows its commitment to the Indian market. He mentioned that WeWork has sold its investment in its China business.

Asked whether the company has any plan to relaunch its public offer, Mathrani said the company is currently targeting to achieve profitable growth and positive cash flow, and then will decide the path forward.

“I am a big believer of we take one step at a time, we show profitable growth and then decide what the path forward is. Get to the cash flow positive and then decide,” Mathrani said.

In September 2019, WeWork had withdrawn its public issue that sought to value the company at USD 47 billion. The valuation reportedly dropped to less than USD 8 billion.

Karan Virwani, the CEO of WeWork India, said demand for flexible workspace has increased from large enterprises.

He said the share of large corporates in WeWork India centres has gone up to 67 per cent from 50 per cent but expressed confidence that small members would come back post pandemic.

WeWork India, which is owned by Bengaluru-based realty firm Embassy group, will not set up centres and then find clients, but it will prefer to take up clients and accordingly lease properties.

Virwani said the WeWork India has been able to reduce its cost by around Rs 250 crore.

WeWork India currently has 34 centres, comprising 60,000 desks and over 5 million sq ft area, in Bengaluru, Mumbai, Gurugram, Noida, Pune and Hyderabad.

Globally, WeWork has around 840 centres with 6.6 lakh membership.



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