Sunday, 22 September, 2019

SoftBank urges WeWork to shelve IPO

WeWork plans to go public WeWork reportedly might slash its valuation below $20 billion, or even postpone its IPO
Russell Knight | 11 September, 2019, 04:06

Sanford C. Bernstein analyst Chris Lane said that if WeWork halts its IPO, SoftBank could come up with an alternative funding plan for the startup, which he estimates needs $9 billion in funding to become cash-flow positive. "(We Company) will have to listen to them", said Lane, who values the office space-sharing firm at $23 billion.

But the tech conglomerate's reluctance to pump further funds into WeWork means the startup "may have no choice but to push ahead with the IPO at a much lower than anticipated valuation", one of the sources said. WeWork's S-1 revealed that the company is not profitable- in 2018 The We Company generated $1.8 billion in revenue but suffered $1.9 billion in losses.

SoftBank, the Japanese investment firm that owns about 30% WeWork, has reportedly urged the property company to drop its flotation plans. Last Wednesday, Rennaisance Capital co-founder and chairwoman Kathleen Smith told CNBC that the poor IPO performances of Uber and Lyft-especially given the similar unprofitable natures of their business models-could reflect directly on the We Company's public debut.

SoftBank Group Corp. and its affiliates hold about 29 percent of WeWork stock, Bloomberg reported last week.

A low valuation would hit SoftBank Group especially hard.

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In another possible sign investors may be souring on high-priced IPO stocks, the parent of soon-to-go public WeWork is considering cutting its valuation to below $20 billion. However, last week there were rumors that WeWork thought it was worth only $ 20 billion. "With investor concern regarding the mid- to near-term outlook for the global economy, the timing for this IPO isn't ideal".

Having burned through $2.36 billion in cash in the first half of the year, WeWork requires a fresh injection of funds and is looking to raise between $3 billion and $4 billion in the IPO, Reuters has reported. The rooms are rented out to individuals and companies under short-term contracts.

Adding to the importance of We Company going public is the $6 billion in bank commitments it secured in August, which is dependent on it raising at least $3 billion from the IPO.

The company has even taken steps to roll back some of the more outrageous financial arrangements that made traders take a look at the company askance. 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.

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