
WeWork Parent Weighs Slashing Its Valuation in Half - jason_zig
https://www.wsj.com/articles/wework-parent-weighs-slashing-its-valuation-roughly-in-half-11567689174?mod=rsswn
======
JumpCrisscross
This is the same bollocks Softbank played with Uber. Buying secondary shares
at X, making a tiny investment at 2X, and then claiming the company is worth
2X. (It wasn't and it isn't.)

"Slashing its valuation in half" means reverting to X, the price around which
WeWork last bought back shares. Even this reduced value is likely twice as
high as it should be.

~~~
Gibbon1
So basically a huge pump and dump

~~~
joering2
But did they break any laws? Can SEC or AG cone after them? AFAIK they dont
even have US presence right? Its all China owned??

~~~
mlyle
??

Softbank is a Japanese holding company.

Organizations making large investments in US companies and US markets are
absolutely subject to US securities laws.

------
aresant
Softbank has $12b+ up so far into WeWork. (a)

So are they better off supporting the IPO price by exposing themselves another
$3b (20%), writing down the IPO by 50% which likely is at least $3b in losses,
or delay?

And muddying their view, as I commented yesterday, is the fact that there is a
huge debt contingency surrounding this IPO.

EG if WeWork does NOT raise at least $3billion in this IPO they will be in
default of a contingency with lenders that will WITHHOLD a committed $6billion
credit line. This huge credit facility is their growth engine forward (b).

(a) [https://www.reuters.com/article/us-wework-m-a-
softbank/wewor...](https://www.reuters.com/article/us-wework-m-a-
softbank/wewor..).

(b) [https://www.bloomberg.com/news/articles/2019-08-01/wework-
se...](https://www.bloomberg.com/news/articles/2019-08-01/wework-se...).

~~~
bertil
In case of a default, what would happen to all the companies who could on
WeWork operating for their office to remain functional?

~~~
atm0sphere
tbtf. fed will step in

~~~
jonwachob91
The Federal Reserve only steps in when there is 1) system wide risk, and 2)
when the company they are interfering with owns enough assets to guarantee the
fed loans.

* Bear Sterns had healthy assets, Lehman Brothers did not. __AIG had enough healthy insurance premiums to guarantee the loan to fix the unhealthy insurance products. __Fannie Mae and Freddie Mac owned the home mortgages assets.

\---

1) WeWork doesn't have a substantial enough real estate position to bring down
the entire real estate system.

2) WeWork doesn't have any assets to guarantee a fed loan.

~~~
atm0sphere
should have put an /s

------
whatok
"Among the possibilities they discussed was SoftBank serving as an anchor
investor in the IPO by buying a significant portion of the roughly $3 billion
to $4 billion the company is expected to raise. They also discussed whether
SoftBank might invest a chunk of money that would allow We to delay its IPO
until 2020, people familiar with the conversations said."

This is a real mess.

~~~
s_Hogg
It's weird how the people who are best-informed here seem to be the latest to
the party as far as that realisation goes. Why did they (by that I mean, We),
even decide to kick the whole IPO process off? Surely they didn't need to do
this now?

~~~
maxerickson
They didn't anticipate the meddling kids.

What I mean is, they thought they were going to get away with it.

~~~
cosmie
> They didn't anticipate the meddling kids.

Nor their dumb dog![1]

[1] The parent reference is to the catch line in Scooby Doo, for those that
aren't familiar. And quite well fitting to the situation.
[https://youtu.be/mbXxgQLlF08](https://youtu.be/mbXxgQLlF08)

~~~
Bizarro
Scrappy was the biggest meddler...always mucking up the works.

------
ineedasername
This would seem to be a huge red flag. The fact that they'd use additional
funding to potentially delay an IPO indicates that the IPO may be necessary to
raise money for operating expenses rather than just as a vehicle to allow
early investors a profitable exit. If they don't get that funding and need to
do an IPO at a significantly decreased valuation, they may not have a good
short-medium term path to staying solvent.

I think it's premature to predict collapse yet, but it does point toward that
possibility of a house of cards falling. It would also help explain why its
CEO is so eager to publicly & brazenly self-deal to extract as much value into
his own pockets as he can before the collapse. Which ironically, playing into
the concerns about corporate governance, could be the tipping point that
causes or hastens collapse.

------
trimbo
Road show going that well?

WeWork highlights why I am still skeptical of pure index investing. This
company seems rotten, and I would not deliberately buy their stock. But
there's a big pool of index fund money that will be thrown at this company's
stock no matter how poor their governance is or how much self-dealing they
do... just because it's public.

~~~
tfha
Some indexes have filters that prevent really awful companies from being
included. For example, I don't think Snapchat was allowed into the S&P 500
because the stock was so crappy.

~~~
trimbo
Vanguard's total stock market fund is Snapchat's #1 mutual fund holder

[https://finance.yahoo.com/quote/SNAP/holders/](https://finance.yahoo.com/quote/SNAP/holders/)

AFAIK, most "target date" retirement funds use total market passive investing.
Maybe instead of "index investing", I should have said "passive investing".

~~~
conanbatt
Good lord. Vanguard has 5% of Snap!

Vanguard must own a significant share in so many companies right now. I'm
starting to believe the narrative that the next crisis is passive investing.

~~~
jonknee
Well they also have a significant share of invested funds ($5.3 trillion under
management!), it would be really weird if they didn't have a significant share
of many companies.

~~~
conanbatt
I guess the risk is that if people withdrew funds in a recession/crisis, they
would blanket-kill every company out there, even companies doing really well.

~~~
jonknee
As opposed to all the recessions/crises before indexing where stocks didn't go
down? Sharp people will scoop up great names at a discount just like always.

~~~
conanbatt
Its not the same: someone unwinding broad positions could sell anti-cyclical
stocks that did not fall too hard and keep the ones lowest.

Someone with index funds has no choice: has to dump the good and the bad.

~~~
ummonk
There are plenty of value stock ETFs out there. You don't have to go with an
index fund.

~~~
thekyle
Value stock ETFs are index funds.

~~~
ummonk
Many are index funds, but some are directly curated by the fund creator
without mirroring any pre-existing index. Though they still function similarly
to index funds in that they have low expense ratios, unlike traditional
actively managed mutual funds with their exorbitant management fees.

------
cs702
Looking at an ambitious, high-concept, money-burning endeavor like The We
Company[a] from the outside, one would assume "there must be at least some
adults in the room, in control of the situation; no one would have signed up
on this otherwise... right?"

Apparently, no.

\--

[a] I'm not sure it can be called a "business." Judging by the financial
details in the S-1, if the We Co. doesn't raise _gobs of capital_ soon, via
the IPO or otherwise, it will quickly run out of cash:
[https://www.sec.gov/Archives/edgar/data/1533523/000119312519...](https://www.sec.gov/Archives/edgar/data/1533523/000119312519236798/d781982ds1a.htm)

~~~
mikestew
Time for my Old Man Moment: if my years on this earth have taught me anything,
it's that most of the time the adults aren't _nearly_ as in control of the
situation as we'd like to think. And even if that rare adult realizes the
weight of the situation, no one wants to be the one to pull the emergency
brake cable when the brick wall looms ahead of us.

------
goatinaboat
It’s a valid question: what could we do if we had unlimited money? One answer
to that question was “put a man on the moon and return him safely to Earth”.
SoftBank has the means but seems to have no “vision” at all. I mean you have
literally $100Bn and all you can think of is... that?

~~~
ryandrake
For most people and organizations with effectively unlimited money, the answer
to “What should we do?” is “Do something with least effort and just barely
within the law to make even more money.”

------
Edmond
In other words we have actual investment fraud happening here, because the
only way you agree to -50% re-valuation is to admit you grossly inflated the
valuations to begin with.

If I lied to a bank that I had assets worth $x as collateral for a loan and it
was later revealed to be a lie, I would be headed to the slammer in no time.
These guys had every intention of dumping this garbage onto the public markets
for the rest of us to be left holding the bag.

~~~
acchow
WeWork didn't decide their own valuation. Investors did.

~~~
downrightmike
You mean the banks who wanted to make gobs of money fleecing investors.

~~~
acchow
Softbank's investment inflated WeWork's valuation. How does Softbank win in
this scenario? How does the "fleecing" work?

They certainly didn't win in their Uber investment.

------
Traster
This company will never achieve profitability, it will have burned through
literally Billions of investment money. It will have done this whilst buying
its own brand off the CEO, self-dealing from the CEO and _literally buying a
wave machine for the CEO_. It's going to absolutely crush the landlords that
rented to them.

...And the CEO is going to walk away with $700m cash.

~~~
benjaminclark
WeWork never achieving profitability does seem entirely possible, maybe even
the most likely outcome. However, I'm not sure that leads to the conclusion
that it will crush their landlords. All of those landlords are sophisticated
parties who could understand the counterparty risk involved in their choice of
tenant. They should be prepared to deal with making money from WeWork for the
time being and then finding a new tenant.

With regard to Neumann walking away with $700m, I've got to say if you are
going to make a bunch of money off schmuck investors, it would be hard to find
a list of investors I have less sympathy for than the Vision fund investors.

------
mrosett
It would be wild if they pull this IPO. I consider the WeWork leadership team
to be entirely unethical and wouldn't want to invest in them myself, so I'll
admit to feeling a bit of schadenfreude.

~~~
ryandrake
The schadenfreude when this one fails is going to be great. Not as gratifying
as Theranos, but how can you top those clowns? The only thing that would make
these flameouts even better is if the arrogant wealthy swindlers actually lost
their fortunes and ended up in the soup lines, but unfortunately it never
happens.

------
neom
Twilio at IPO was a good investment, Twilio at 23 was even better. PagerDuty,
Elastic, Fastly, Datadog, CloudFlare... there are lots of great stocks to
invest in. This certainly isn't one of them.

------
Wowfunhappy
Well, now that it's leaked that they were weighing it, they basically have to
do it, or something similarly drastic, right? Because now expectations are
lower.

~~~
duxup
Probably, but arguably all the negative news may have made the IPO plans
untenable as it is.

Granted it is hard to measure investor interest but I'm not sure it was viable
to just go along with the IPO, meeting leak or not.

------
ummonk
What is up with Softbank? It seems to be throwing a lot of its money into
overvalued late stage funding rounds for companies that don't really have
growth potential left in them.

~~~
rossdavidh
Hypothesis: they have been given more money than they have good investment
targets for, among others by Saudi Arabia after they postponed the Aramco IPO.
They had to invest that money somewhere, so they gave companies like Uber and
WeWork 10x what their most generous investment should have been.

Disclaimer: I don't have any inside or expert knowledge about Saudi Arabia or
Softbank. But they seem to have been stuffing billions of dollars into
companies that can pretend to be "tech", but aren't really.

~~~
alephnan
> they have been given more money than they have good investment targets for

Why not give the money back?

~~~
rossdavidh
I'm not saying you're wrong, but I'm not surprised that they didn't.

------
yalogin
The tech companies going public after the last recession are all like this.
They squeeze out as much funding they can from investors and when that dries
up or when the investors demand their money back the company dumps their stock
on the unsuspecting public and makes money. Most of them don’t make money and
have terrible balance sheets but still somehow are “great” “unicorns”. I don’t
invest in any one of them.

~~~
TrackerFF
9 out of 10 times, when I ask someone about a woefully unprofitable business
model, I get the same answer - seriously, almost every time:

"Yeah but look at Amazon, they had x unprofitable years"

"We're still in the growth phase, our business model relies on scale and
market share."

~~~
kreck
Can confirm. To back test i sometimes ask those people on their opinion on
juicero, just to be sure about who i’m dealing with.

------
georgeecollins
This is the part that I believe is a bit deceptive to retail investors:

>> Over the past year, SoftBank committed to invest $4 billion in We at a
valuation of around $47 billion. It also spent $1 billion to buy existing
shares from We employees and investors at a valuation of around $23 billion.

It makes it seems like SoftBank believed the company is worth owning at a
value of $47B. I don't know for sure, but I strongly suspect that they have a
liquidation preference for their investment so that they get all their money
back even if the company is much less valuable than $47B. That is unlike
common share investors who may think they are getting the same thing at the
same price. When they actually bought shares from employees they only paid
half as much.

------
inflatableDodo
_' My pen, which is accustomed to figures, is unable to express the march and
rhythm of consonance; therefore I shall try to record only the things I see,
the things I think, or, to be more exact, the things we think.

Yes, "we"; that is exactly what I mean, and We, therefore, shall be the title
of my records.'_

 _' We'_, by Yevgeny Zamyatin - [https://mises-
media.s3.amazonaws.com/We_2.pdf](https://mises-
media.s3.amazonaws.com/We_2.pdf)

------
torgian
It’s interesting how much SoftBank has interest in. A friend of mine’s company
was given funding by Softbank, but those funds were delayed due to Saudi
interests being held up by blocked wire transfers at the time.

A _lot_ of Softbanks’ money comes from Saudi Arabia and Iran, etc

~~~
syassami
Source on Iran in the Vision fund?

~~~
jessaustin
That does seem unlikely. The whole point of basically all the violence in ME
is that MbS and his silent partners hate Iran.

Then again, what sort of investment would one suggest for a hated enemy? Maybe
Softbank?

------
arbuge
That would still leave it massively overvalued compared to conventional
players like IWG (Regus). Those players also don't have unusual corporate
governance concerns.

------
thorwasdfasdf
With risk like this, people wonder why softbank would invest so much in the
likes of WeWork and even Uber at such a late stage. But, I think it's no
wonder, considering how low global interest rates, and future equity returns
are. This is what happens in an ultra low interest rate environment. Desperate
investors do desperate things, and thus increasingly risky investments start
looking better and better against negative yield interest.

------
mrnobody_67
It'll be interesting how much of the confirmation & consistency bias forces
SoftBank's hand here... will they throw good money after bad?

The board of directors at WeWork is crazy dysfunctional as well... Im guessing
no one has a questioner tendency, they all just went along with whatever BS
they were told by the management team and nodded in order to maintain group
cohesion and avoid being labeled as "difficult".

------
WMCRUN
Wow, now WeWork looks even more overvalued than it did when I wrote this list
[1] of things it’s “worth more than”.

My favorite: At $47 billion, We would be more valuable than all the cash
raised by every IPO in 2018.

[1] [https://betterquestions.blog/what-is-we-
worth/](https://betterquestions.blog/what-is-we-worth/)

------
synaesthesisx
Companies like Knotel are set to eat WeWork's lunch. I cannot fathom how
WeWork's astronomical valuation is even remotely justified.

Relevant: [https://stratechery.com/2019/what-is-a-tech-
company/](https://stratechery.com/2019/what-is-a-tech-company/)

------
anm89
Can anyone point me in the direction of good resources on how to short IPOs
directly on the first day?

~~~
empath75
You can’t and probably shouldn’t. First days are super unpredictable and you
could get margin called very easily on it.

------
Animats
WeWork and its parent don't hold the leases in the buildings. They have
special-purpose entities for each building, so they can go bankrupt piecemeal.
That will probably start when the recession hits.

~~~
code4tee
That may provide them some short term legal protection, but the second one of
these sub-entities plays that card it’s basically game over for the whole
enterprise.

~~~
vkou
Why? Legitimately curious.

------
anonu
Never have a down round! This must really hurt. SoftBank just put in $5bn at a
$40bn+ valuation. Imagine how that cash just loses half it's value (from an
investor perspective) instantly..

------
huac
anyone know what strike price WeWork employee offers were at? guessing anybody
who joined since the last round is underwater

------
binky
I'm feeling sorry bag holders to be. Raise awareness among F&F.

------
vadym909
Finally a stock worth putting all my spare money into shorting!

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buboard
That's a good start

------
ulfw
This whole IPO is going so well...

------
omarhaneef
EDIT: Removing it because have a lot more thoughts on this that do not get
captured here properly.

~~~
tomp
How do liquidation preferences work when a company goes public? Presumably
shares are then just shares, and have a market value... Or are they converted
into preferred shares?

~~~
omarhaneef
That is true -- most likely the preferences will go away, although who knows
what they may negotiate.

------
purplejacket
Can people please stop putting this paywall crap up here on hacker news?

