WeWork postpones flotation after chilly investor response

WeWork shelved its initial public offering (IPO) overnight after struggling to drum up investor interest in the multibillion-dollar listing, in an embarrassing setback for the New York-based property group.

The company had planned to launch a roadshow marketing the IPO as early as Monday morning and to price and list its shares next week. It said it now aimed to complete its offering by year-end, but declined to comment further.

The group had faced a chilly response from the institutional investors that can make or break a flotation, with some raising concerns over the outsized sway WeWork co-founder and chief executive Adam Neumann has over the company as well as its increasing operating losses.

Mr Neumann (40) had given his advisers at JPMorgan Chase and Goldman Sachs until the end of September to finalise the listing, which was expected to raise between $3 billion and $4 billion.

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WeWork told employees it would hold a company-wide webcast on Tuesday, according to a person familiar with the matter.

The extreme difficulty the property company has had enticing would-be investors will complicate its plans to list this year or in early 2020, said one person briefed on the matter.

The company has been involved in seven major property deals in Ireland since entering the market in the final quarter of 2017 – most recently taking 18,158sq ft at George’s Quay House.

WeWork has been under pressure to complete the listing in spite of limited investor interest, and it was reported last week that the company had held discussions with its biggest backer – Japanese telecom-to-technology group SoftBank – over a cornerstone investment in the IPO.

It was unclear if SoftBank was willing to commit to such a large investment in WeWork’s parent, the We Company, particularly after executives at SoftBank had pressured Mr Neumann to delay the listing. Mr Neumann had resisted those calls from SoftBank and instructed his team to push forward with the IPO during the past week, according to sources.

SoftBank and its Saudi Arabia-backed Vision Fund have already invested or committed to invest $10.7 billion in the group.

Delay to the IPO will also block WeWork from accessing a $6 billion loan that had been provided by a consortium of banks, contingent on a successful flotation this year. If WeWork is unable to finalise its listing in 2019, it could be forced to draw up new financing plans.

While the company is still set to receive a $1.5 billion capital injection from SoftBank in 2020 as part of an earlier agreed deal, the cash cost of its global expansion has depleted its reserves and proven a key issue for investors.

The company lost roughly two dollars for every dollar of revenue it generated in the first half of 2019. Filings with US securities regulators showed WeWork burned through nearly $2.4 billion in cash in the period, almost matching its entire cash outlay last year.

The sharp haircut Mr Neumann was willing to accept on the company’s valuation signalled both to WeWork insiders and his advisers just how keen the billionaire co-founder was to get the IPO off the ground.

Late last week, bankers were testing investor appetite for new shares that valued the company at between $15 billion and $18 billion, far below the $47 billion valuation WeWork earned from its SoftBank-led fundraising in January.

Mr Neumann criss-crossed the country on the company Gulfstream jet this month to meet and pitch possible backers. In an attempt to shore up investor interest, the We Company agreed to governance changes that reduced Mr Neumann’s control.

However, investors said the governance tweaks did not go far enough and that their primary concerns were over WeWork’s fundamental business model of releasing properties owned by other landlords.

WeWork was the latest in a string of private groups to face an icy reception from investors in public markets, after disclosing its listing plans in August.

Companies have raised more than $100 billion via IPOs in 2019, making this a banner year, according to Dealogic data. However, several high-profile groups have stumbled, with shares in ride hailing apps Uber and Lyft remaining below their IPO prices. – Copyright The Financial Times Limited 2019