(Bloomberg Opinion) -- When WeWork last published an investment prospectus in 2019, potential IPO investors were horrified by the corporate excess and cash burn. Now as part of its second attempt to go public via a merger with blank-check company BowX Acquisition Corp., WeWork has published another one laying out everything that’s happened since then. Though lacking in the original’s grandiose claims about “elevating the world’s consciousness,” the new document doesn’t otherwise disappoint.
I won’t repeat my views here on WeWork 2.0: In short, new Chief Executive Officer Sandeep Mathrani has sketched out a plausible path towards profitability. He’s reset the office-sharing pioneer with what it calls a “cost-conscious mindset.” The company stands to benefit from the post-pandemic shift to more flexible working. Notably, unlike other SPACs that have announced transactions recently, BowX trades at a 25% premium to the value of the cash it holds, indicating investors like the deal.
But my goodness, did Mathrani have a big mess to clean up. What jumps out most from the new prospectus is how much of the $15 billion WeWork had “invested” since inception was wasted, especially on frivolous M&A and big payouts to some of the executives involved. Misallocated capital has made the turnaround task more difficult.
Its outsize real-estate footprint left it very exposed to the demand shock caused by the pandemic. Membership fell 26% last year to about half a million. But the company has built desk capacity for twice that number. Even after exiting more than 100 problematic leases, WeWork still has an incredible $41 billion in future lease liabilities.
As part of the mammoth restructuring, WeWork booked a total of $1.4 billion in impairments last year. Part of that total reflects writedowns on businesses and other assets that founder Adam Neumann purchased when building his “We Company” empire. Many were sold or wound down just months after they were acquired.
Offloading assets during a pandemic isn’t the best moment to realize full value and his impulse buys weren’t all misses. But many were. Take Managed by Q Inc., an online facilities management platform. It was acquired for $190 million in cash and preferred stock in April 2019 and then sold 11 months later for $28 million.
The list goes on. Last year WeWork offloaded a 90% stake in an online events platform, Meetup Inc., for just $9.5 million, a fraction of the $156 million cash price paid in 2017. It wrote off $23 million prior to selling Refresh Club Inc., a women’s co-working space, and the same amount in relation to SpaceIQ, a workplace management tool.
Other acquired businesses, including Spacious Technologies Inc. (a shared workspace provider), Prolific Interactive LLC (a design agency) and Waltz Inc. (smartphone authentication), were wound down, resulting in a further $70 million of impairments.
Even Neumann’s flashy $60 million Gulfstream jet was sold off at a discount. The accounts aren’t specific on this point, but they note that in July 2020, “the Company sold certain non-core corporate equipment for total cash consideration of $45.9 million,” resulting in a $14 million impairment.
It's a lesson in how having a large checkbook isn't always a ticket to value creation. While WeWork positioned itself at the heart of the sharing economy, at the end of the day it rents desks.
What makes the SPAC documents even more compelling reading is how little WeWork’s former top executives seem to have suffered.
Following a lengthy legal fight with majority shareholder SoftBank Group Corp., Neumann’s exit package included a $185 million non-compete fee and $106 million “settlement payment,” the accounts show (the money was paid by Softbank, not WeWork). Neumann also sold $578 million of stock to Softbank and still has a more than $430 million credit line with the Japanese technology investor (this replaced the huge personal loan JPMorgan Chase & Co. had facilitated).
Artie Minson and Sebastian Gunningham, who served briefly as co-chief executives before they too resigned last year, each received more than $8 million in cash severance. WeWork also forgave $12.9 million in loans to former Chief Operating Officer Eugen Miropolski and fronted more than $10 million in taxes for him. The prospectus says past compensation practices were “bespoke and sometimes inconsistent.”
From the perspective of the BowX SPAC investors, much of this is water under the bridge. The chief victim was Softbank, which only has itself to blame. If Mathrani delivers the profits he’s promising, there will be few complaints about the $10 million bonus he’s been promised for a successful listing.
WeWork’s slate isn’t entirely wiped clean, though. The prospectus confirms that the U.S. Securities and Exchange Commission has subpoenaed information and interviewed witnesses about its 2019 valuation, financial condition and certain related party transactions. (WeWork says it’s cooperating with this and other investigations.)
WeWork is also starting over with a big debt pile. It would be in a far better shape if it hadn’t wasted so much money.
The reduction includes employees associated with businesses that have been sold or deconsolidated.
This is an undiscounted figure. The total security packages provided by WeWork in respect of these lease obligations is approximately $7billion
Neumann also negotiated the right to observe WeWork board meetings from February 2022
WeWork's original IPO prospectus revealed executive loans were issued in connection with restricted stocks purchases
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Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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