Michelle F. Davis, Gillian Tan and Sridhar Natarajan
New York| WeWork is considering major changes to governance to assuage investor concernsahead of an initial public offering this monththat has even given pause to some of its own bankers, according to people with knowledge of the situation.
Both of WeWork’s lead financial advisers – JPMorgan Chase and Goldman Sachs – have concerns about proceeding with an IPO that could value the company as low as $US15 billion ($21.8 billion), the people said, asking not to be identified because the talks are confidential. That has set off a push to make the public sale more palatable to potential investors with governance reforms.
Changes could include curbing the voting power of founder Adam Neumann and removing his co-founder wife from a role in succession planning.
Any decision ultimately rests with Mr Neumann, who maintains voting control through a three-class share structure and has been an adamant proponent of the IPO, the people said.
The stakes are high for the money-losing venture and backers including SoftBank, its largest investor, which added to its stake in January at a $US47 billion valuation. WeWork needs to raise at least $US3 billion through an IPO to tap into an additional $US6 billion credit line that bankers have been setting up in recent weeks. The facility requires the company to carry out its offering by December 31, one of the people said.
The goal is to conclude a roadshow and price the offering before Rosh Hashana, one of the people said, effectively setting a deadline of September 27. Getting it done beforehand would allow Mr Neumann, 40, to avoid using technology and observe the holiday in compliance with Jewish orthodoxy.
Adam’s voting control will limit the ability of other stockholders to influence corporate activities.
— WeWork prospectus
The company could also have to compete for investor interest with home-fitness start-up Peloton Interactive, which is set to kick off its roadshow, also being led by Goldman Sachs and JPMorgan.
WeWork already has taken some steps to improve interest in its IPO, such as adding a woman to its board and having Mr Neumann return $US5.9 million of partnership interests initially granted to him as compensation for trademarks used in a rebranding.
Yet its prospectus last month raised a variety of other concerns. Among them: The company paid Mr Neumann rent and lent him money. There is also his voting rights over major decisions.
A WeWork spokesman declined to comment.
“Adam’s voting control will limit the ability of other stockholders to influence corporate activities and, as a result, we may take actions that stockholders other than Adam do not view as beneficial,” the prospectus warns. WeWork’s triple-class share structure ensures Mr Neumann has an undisputed grip on the company’s decisions. The company’s B and C class shares have 20 votes each, compared with the one-vote Class A shares.
WeWork, which owns or leases offices and then rents space to companies that typically have shorter-term needs, released a preliminary prospectus last month showingthe firm had racked up billions in losses and was burning cash. It lost $US690 million in this year’s first half, bringing total losses to almost $US3 billion in the past three years.
Toll on investor enthusiasm
The company had planned to hold a formal roadshow to promote the offering as soon as this week. But scrutiny of the firm’s finances and governance, as well as broader market turmoil, have taken a toll on investor enthusiasm.
Early this year, Goldman Sachs privately suggested to people close to WeWork that its valuation could rise to $US65 billion after going public. Advisers estimate it may achieve less than a third of that under current conditions.
Since Thursday, WeWork executives have met in London, Boston and Toronto with investors who could potentially participate in an IPO or alternatively help provide capital privately, according to a person with knowledge of those gatherings. And in recent days, bankers handling the IPO have encouraged the company to proceed with the sale, the person said.
– with REUTERS