WeWork has formally withdrawn its plan for an initial public offering, signalling the need to reduce its losses and revamp the business before making a new attempt at a public market listing.
The decision by the office space company’s new management drew a line under an IPO process that started with hopes of topping a $47bn valuation and ended with the demotion of chief executive Adam Neumann.
“We have decided to postpone our IPO to focus on our core business, the fundamentals of which remain strong,” said co-chief executives Artie Minson and Sebastian Gunningham.
The company published a prospectus for the offering on August 14, only to encounter a storm of opposition from institutional investors over its corporate governance and a business model that has led to it reporting a dollar in losses for every dollar it made in revenues.
The cash-hungry business had hoped to raise $3bn to $4bn from the IPO, which would have unlocked a further $6bn debt package from banks that were also underwriting the process.
Instead, it is now in talks to renegotiate a $1.5bn injection from SoftBank, its largest investor, due next year, which could be raised to $2.5bn or more, albeit at a much reduced valuation. The additional equity could unlock a renegotiated $3bn to $4bn loan package from banks including JPMorgan Chase and Goldman Sachs.
In a brief statement, Mr Minson and Mr Gunningham indicated that they still hoped to get the IPO back on track in time, but did not say when.
“We are as committed as ever to serving our members, enterprise customers, landlord partners, employees and shareholders. We have every intention to operate WeWork as a public company and look forward to revisiting the public equity markets in the future,” they said.
The company had hoped in the past two weeks to test investor appetite again by the end of the year, but opposition from SoftBank and a series of badly received listings have forced it to concede that no new IPO is possible this year.
Companies face restrictions on their communications with investors between filing IPO paperwork and listing. The withdrawal lifts some of those constraints.
The two co-CEOs are expected to announce steep lay-offs, starting with some of the senior executives who were closest to Mr Neumann.
WeWork’s valuation was set at $47bn in a January fundraising from SoftBank, but public market investors balked at a valuation as low as $15bn when underwriters tested appetite before a planned IPO roadshow.
The value of WeWork debt has also been hit. Bonds maturing in 2025 dropped to a new low of 85 cents on the dollar on Monday, having traded as high as 105 cents in August when the IPO was announced.
“The bonds rallied to an all-time high in August on news of the IPO because it would be an additional equity cushion underneath them,” said John Dixon, a high-yield bond trader at Dinosaur Financial Group. “For the moment, that’s been lost.”
The bonds now yield around 11.6 per cent, well above the 7.9 per cent coupon from when they was first sold. It puts the single-B rated debt closer in line with lower single-C rated debt, which currently trades at an average of 11.9 per cent, according to an index run by Ice Data Services.
“The yield portends further downgrades by the rating agencies,” said Mr Dixon.
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