NEWSMAKER-WeWork IPO spells rough landing for CEO Neumann

… billing clinched in a private fundraising round in January backed by Japan’s SoftBank Group Corp, people familiar with the matter said on Friday.

NEW YORK (Reuters) – Adam Neumann showed he can capitalize on troubled times a decade ago, tapping into demand for workspace by those forced out of jobs in the aftermath of the financial crisis to grow WeWork into a global brand commanding a $47 billion valuation.

FILE PHOTO: Adam Neumann, CEO of WeWork, speaks to guests during the TechCrunch Disrupt event in Manhattan, in New York City, NY, U.S. May 15, 2017. REUTERS/Eduardo Munoz -/File Photo

Yet his plans to take WeWork’s corporate parent the We Company public have backfired, as his company becomes the poster child for a bubble in venture capital fundraising that has pushed some start-ups to unsustainable valuations.

The We Company is contemplating slashing its valuation to as low as $10 billion from the $47 billion billing clinched in a private fundraising round in January backed by Japan’s SoftBank Group Corp, people familiar with the matter said on Friday.

The sharp drop comes amid investor criticism of widening losses and Neumann’s firm grip on the company.

Neumann, 40, is under pressure to proceed with the initial public offering (IPO) to raise cash to keep WeWork’s operations going. The New York-based company rents workspace to clients under short-term contracts, even though it pays rent for them itself under long-term leases.

It is by far the biggest crisis Neumann has faced in his career, after arriving in New York at the age of 22 following service in the Israeli military.

He failed in several ventures before selling his first co-working firm, Green Door, for $300,000 with business partner Miguel McKelvey a decade ago. Neumann and McKelvey used the proceeds from that sale to start WeWork, with its first customers coming to the lower Manhattan site just off Chinatown in February 2010, after seeing ads in Craigslist.

Community was a driving force behind the new venture, launched at a time when millions who had lost jobs during the 2008 financial crisis were looking for flexible work space.

“It quickly became apparent that people were ready for a new approach to work, not just their workspace,” Neumann said in a blog post in 2016, marking the launch in Berlin of WeWork’s 100th site.

Neumann’s parents divorced when he was a boy and he moved 13 times as a child and adolescent, living awhile in Indianapolis where his mother, an oncologist, finished her medical residency. He has called his childhood challenging because of the moves.

They returned to Israel where he lived in kibbutz Nir Am, near the Gaza Strip, and later served in the Israeli military, which he says taught him to be something greater than himself.

Neumann’s experience on a kibbutz and McKelvey’s growing up in a five-mother commune in Oregon have been cited as a reason the pair hit it off. McKelvey is an architect with the title of chief culture officer at WeWork.

Neumann, now a billionaire as the majority owner of We Company, also has said he thought money was the goal in life until he met his wife Rebekah, a cousin of actress Gwyneth Paltrow.

Formerly called chief brand director, Rebekah Neumann is referred to as a co-founder of WeWork. She is also a filmmaker and introduced Neumann to Kabbalah, a form of Jewish mysticism that has attracted celebrity followers. They have five children.

ELEVATING WORLD’S CONSCIOUSNESS

The early success of the shared workspace validated the global community Neumann envisioned where people can achieve more together than alone, or in the words of the company’s famous mantra: “to make a life, not just a living.”

Neumann arrived in New York in 2001 where he lived with his sister Adi, an Israeli model, and started a handful of businesses that failed, including women’s shoes and a line of baby clothes with knee pads called Krawlers.

“When I came to New York I was angry about my history,” Neumann told a luncheon at the New York Stock Exchange in June 2017, adding he learned that you don’t deserve anything. “I became happy. My past helped make who I am today,” he said.

Neumann, described as key to setting WeWork’s strategic direction and execution priorities in the IPO filing, can come off as a bit zany. In the 2016 blog post he said the future of cities would require a healthy mix of 70% magic and 30% logic.

The We Company also said in the filing that its mission is to elevate the world’s consciousness and that as a community company it is committed to maximum global impact, a vision Neumann endorses.

Reporting by Herbert Lash in New York; Editing by Daniel Wallis

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SoftBank to Use WeWork IPO to Increase Stake, Report Says

Japanese holding company SoftBank Group intends to use WeWork’s upcoming initial public offering to buy at least $750 million worth of shares, …

Japanese holding company SoftBank Group intends to use WeWork’s upcoming initial public offering to buy at least $750 million worth of shares, a quarter or more of the shares WeWork intends to offer if it does indeed manage to raise its aimed-for $3 billion, the Wall Street Journal reported Saturday.

Investor hype for the IPO has started cooling down once WeWork published its prospectus, which led many to worry over the company’s risky business model. As a result, WeWork has reportedly cut down its targeted company valuation from $47 billion at the time of its January funding round to as low as between $15 billion to $20 billion. On Friday, Reuters reported it might even be going as low as $10 billion.

WeWork co-founder and CEO Adam Neumann . Photo: Bloomberg WeWork co-founder and CEO Adam Neumann . Photo: Bloomberg

On Tuesday, Reuters reported that SoftBank is pressuring WeWork to shelve its IPO due to its drastically slashed target valuation, but that the co-working giant intends to go through with going public. SoftBank is WeWork’s largest shareholder but co-founder and CEO Adam Neumann is the largest holder of voting rights even after making changes following the criticism that met the prospectus. SoftBank is currently in the midst of raising commitments for its second $107 billion Vision fund, while WeWork is counting on the IPO funding to raise further debt for its quick expansion plans.

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The Week in Numbers: US-China Trade Deal on The Cards?

Yield-hungry investors in Japan rushed to snap up SoftBank Group Corp bonds. Monex Group Inc’s online brokerage sold out 500 million yen (S$6.46 …

There was good news for investors as both the US and China made peace-making gestures to ease an already bruising trade war.

China will exempt some agricultural products from the additional tariffs on US goods and will renew the purchase of US farm goods. China has bought US pork despite a 62% tariff imposed on pork since last year.

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Meanwhile, the US will delay a tariff increase on certain Chinese imports. President Trump tweeted on Wednesday that he will hold off on the 5% increase in tariffs on certain Chinese goods until October 15 from the original date of October 1. This was out of respect for the 70th anniversary of the founding of the People’s Republic of China.

The US is calling for China to end what they believe to be unfair practices such as intellectual property theft, industrial subsidies, currency manipulation, and forced technology transfer.

The Hong Kong Exchange (which had a US$39 billion offer to take over the London Stock Exchange (LSE) rejected) has vowed to press on with the deal. The London Stock Exchange also said it would be sticking with its US$27 billion acquisition of data and analytics company Refinitiv.

LSE shares rose 3.3% on the news of the rejection. The LSE also owns the Milan stock exchange and has a large presence in the US through its FTSE Russell index subsidiary and LCH.

Meanwhile, 23% of surveyed companies with an office in Hong Kong are thinking of leaving the city to escape ongoing protests, with Singapore as their favoured destination. Around 1% have already made plans to relocate. Of those firms who are thinking of leaving, 90% see Singapore as the best option.

Around 80% of respondents said the protests have affected their future investment decisions regarding Hong Kong.

Developers in Singapore are concerned about the lackluster new home sales according to Chia Ngiang Hong, president of the Real Estate Developers Association Singapore (Redas).

Based on URA data, as of 30 June 2019, there were about 54,000 uncompleted private residential units in the pipeline with planning approvals and 35,500 of these units remain unsold. On top of that, the supply overhang is exacerbated by the potential 7,100 units from GLS sites and successful collective sales over the year that have not been granted planning approval.

All in, Chia estimates there will be 43,000 units available for sale in the near future. Based on the current take up of 8,000 a year, it will take four to five years for the market to absorb all the available units.

US stocks ended the week at near all-time highs. The Dow closed at 27,219.52, just 140 points shy of its all-time high recorded on July 15. The broader S&P 500 ended the week at 3,007.39, while the tech-heavy Nasdaq closed at 8,176.71. The US Federal Reserve has a policy meeting next week and is likely to cut interest rates once more, which could give the stock market another leg up.

Yield-hungry investors in Japan rushed to snap up SoftBank Group Corp bonds. Monex Group Inc’s online brokerage sold out 500 million yen (S$6.46 million) of the bonds in less than three minutes. Softbank is raising a total of 400 billion yen in the most recent bond sale and has priced the seven-year notes at a 1.38% interest rate.

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WeWork considers dramatic valuation discount in IPO

And it would represent a major blow to its biggest backer, Japan’s SoftBank Group Corp, at a time it is trying to amass $108bn from investors for its …

Reuters/New York

WeWork owner The We Company may seek a valuation in its upcoming initial public offering of between $10bn and $12bn, a dramatic discount to the $47bn valuation it achieved in January, people familiar with the matter said on Friday.

Were the We Company to press on with the IPO at such a low valuation, it would represent a major turning point in the venture capital industry’s growth over the last decade, that has led to the rise of startups such as Uber Technologies Inc, Snap Inc and Airbnb Inc. It would mean that the We Company would be valued less than the $12.8bn in equity it has raised since it was founded in 2010, according to data provider Crunchbase.

And it would represent a major blow to its biggest backer, Japan’s SoftBank Group Corp, at a time it is trying to amass $108bn from investors for its second Vision Fund.

The sources cautioned that no decision has been made and asked not to be identified because the matter is confidential.

WeWork and SoftBank did not immediately respond to requests for comment.

Investors have expressed concerns about the US office-sharing start-up’s business model, which relies on a mix of long-term liabilities and short-term revenue, raising questions about how it would weather an economic downturn.

The We Company’s deliberations indicate it does not feel confident that the corporate governance changes it unveiled on Friday, slightly loosening CEO and co-founder Adam Neumann’s grip on the company, will be enough to woo investors concerned about its lack of a path to profitability.

The WeWork brand is strongly tied to Neumann, a flamboyant, freewheeling 40-year-old Israel-born entrepreneur who has said that the We Company’s mission is “to elevate the world’s consciousness.” His wife Rebecca serves as the We Company’s chief brand officer and is a powerful figure inside the company.

The We Company’s corporate governance changes are largely symbolic, aimed at showing the We Company is listening to investors after being forced to slash its IPO price expectations, corporate governance experts said.

Last month, it was considering an IPO valuation of around $20bn.

“That change is seemingly cosmetic in nature,” said Charles Elson, a professor of corporate governance at the University of Delaware, referring to the We Company’s announcement it will reduce Neumann’s voting power. “He will still control the composition of the board.”

The office space sharing start-up said it was making the changes “in response to market feedback.” It said Neumann’s superior voting shares will decrease to 10 votes per share from 20, though he will still retain majority control of the company. Neumann will also give the company any profits he receives from real estate deals he has entered into with We Company. He will also limit his ability to sell shares in the second and third years after the IPO to no more than 10% of his stock.

No member of Neumann’s family will be on the company’s board and any successor will be selected by the board, scrapping a plan for his wife and co-founder Rebekah Neumann, who is chief brand and impact officer, to help pick the successor.

The We Company also disclosed its will list shares on the Nasdaq Stock Exchange.

It plans to complete the IPO this month, and its IPO investor roadshow could launch as early as next week, Reuters has reported.

This is the second effort to repair damage done to the company’s image among investors.

Earlier this month, it added a new member, Frances Frei, to its all-male board and said Neumann would return a $5.9mn payment for use of the trademarked word “We.”

“For all the attention being given to ‘governance reform’ at the We Company, entrenchment through unequal voting rights remains firmly in place,” said Glenn Davis, director of research at the Council of Institutional Investors.

SoftBank chief Masayoshi Son has been pushing Neumann to delay the We Company’s IPO, but has so far failed to persuade him, Reuters has previously reported.

Were the We Company to delay its IPO, it would have to find debt financing to replace a $6-bn loan package it clinched from banks last month.

This debt deal is contingent on the We Company raising at least $3bn in its IPO.

SoftBank has so far resisted replacing this arrangement by offering the We Company more funding.

The last time SoftBank invested in the We Company was in January at a $47bn valuation, injecting $2bn of cash in the New York-based startup, far less than the $20bn investment that the We Company had hoped for.

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SoftBank Group (OTCMKTS:SFTBY) Stock Price Passes Below Two Hundred Day Moving Average …

SoftBank Group Corp – (OTCMKTS:SFTBY)’s share price crossed below its 200-day moving average during trading on Thursday . The stock has a …

SoftBank Group logoSoftBank Group Corp – (OTCMKTS:SFTBY)’s share price crossed below its 200-day moving average during trading on Thursday . The stock has a 200-day moving average of $40.75 and traded as low as $21.61. SoftBank Group shares last traded at $21.71, with a volume of 269,834 shares traded.

Separately, ValuEngine lowered shares of SoftBank Group from a “sell” rating to a “strong sell” rating in a research report on Thursday, August 1st.

The firm’s 50-day moving average price is $23.48 and its 200-day moving average price is $40.62. The company has a market cap of $94.87 billion, a price-to-earnings ratio of 7.73 and a beta of 1.68. The company has a debt-to-equity ratio of 1.38, a current ratio of 1.06 and a quick ratio of 1.01.

About SoftBank Group (OTCMKTS:SFTBY)

SoftBank Group Corp., together with its subsidiaries, operates in the information industry in Japan and internationally. The company operates through six segments: Domestic Telecommunications, Sprint, Yahoo Japan, Distribution, ARM, and SoftBank Vision Fund and Delta Fund. The Domestic Telecommunications segment provides mobile communications and broadband services; and telecom services, such as data communications and fixed-line telephone services to corporate customers, as well as sells mobile devices.

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