WeWork, the
SoftBank Group-backed startup whose meteoric rise and fall reshaped the office
sector globally, perished with liabilities worth $10 to $50 billion and thus sought
US bankruptcy protection, after its bets on companies using more of its
office-sharing space soured.
The action pointed
towards an admission by SoftBank, the Japanese technology group that owns about
60 per cent of WeWork and has invested billions of dollars in its turnaround,
that the company cannot survive unless it renegotiates its pricey leases in
bankruptcy.
Profitability has
remained elusive as WeWork grapples with its expensive leases and corporate
clients withdrawing because some employees work from home. Paying for space
consumed 74 per cent of WeWork’s revenue in the second quarter of 2023.
WeWork liabilities
range from $10 billion to $50 billion
The company
reported estimated assets and liabilities ranging from $10 billion to $50
billion, according to a bankruptcy filing.
“WeWork could use
provisions of the US bankruptcy code to rid itself of onerous leases,” law firm
Cadwalader, Wickersham & Taft LLP said in a note to landlords on its
website in August. Some landlords are bracing for a significant impact.
Few Facts About WeWork
Under its founder
Adam Neumann, WeWork rose to be the most valuable US startup, worth $47
billion. It gained investments from bluechip investors, including SoftBank and
venture capital firm Benchmark, as well as the support of major Wall Street
Banks, including JPMorgan Chase.
Neumann’s pursuit
of breakneck growth at the expense of profits, and revelations about his
eccentric behaviour, led to his ouster and the derailment of an initial public
offering in 2019.
SoftBank was
forced to double down on its investment in WeWork, and tapped real estate
veteran Sandeep Mathrani as the startup’s CEO. In 2021, SoftBank cut a deal to
take WeWork public through a merger with a blank-check acquisition company at
an $8 billion valuation.
WeWork managed to
amend 590 leases, saving about $12.7 billion in fixed lease payments. But this
was not enough to compensate for the fallout from the Covid pandemic, which
kept office workers at home.
Many of its
landlords, who were also feeling the squeeze, had little incentive to give
WeWork a break on the terms of their leases.
While WeWork had
some success in signing up large conglomerates as clients, many of its
customers were startups and smaller businesses, which cut their spending as
inflation soared and economic prospects soured.
Adding to WeWork’s
woes was competition from its own landlords. Commercial property companies that
traditionally only entered into long-term rent deals started offering short and
flexible leases to cope with the downturn in the office sector.
Mathrani was
succeeded as WeWork CEO this year by former investment banker and private
equity executive David Tolley, who as chief executive of Intelsat helped the
debt-stricken satellite communications provider emerge from bankruptcy in 2022.
WeWork engaged in
debt restructurings, yet this was not enough to stave off its bankruptcy. The
company last week secured a seven-day extension from its creditors on an
interest payment, to win more time to negotiate with them.
Reuters (Edited by
NE Watch Desk)
