WeWork revealed its strategy on Monday to emerge from bankruptcy, steering clear of a takeover bid by its co-founder, Adam Neumann. The deal, subject to approval by WeWork’s creditors, involves a significant reduction in debt by $4 billion and infusion of $450 million in fresh financing.
The injection of funds comprises $337 million from tech firm Yardi Systems and $112 million from bondholders. Yardi Systems has been collaborating with WeWork for some time.
David Tolley, CEO of WeWork, stated, “Over the past six months, we have diligently crafted a reorganization plan for WeWork that enhances our financial position, streamlines operations, and positions us for sustained investment in our offerings, fostering long-term growth.”
The pursuit of growth played a pivotal role in WeWork’s downfall, as Neumann aggressively pursued costly lease agreements in the mid-2010s, many of which proved unprofitable. Filing for bankruptcy enabled the company to terminate or renegotiate several of these agreements.
However, this move left WeWork susceptible to Neumann’s attempt to acquire the company he was ousted from, albeit at a staggering cost, following its botched IPO in 2019. Neumann rallied investors for his new venture, Flow, vowing to outbid any offer for WeWork by 10 percent. Nonetheless, WeWork never granted him access to confidential information necessary to make a formal bid, as he was never provided with a non-disclosure agreement.
Under the new agreement, Yardi LLC Cuper Grimmond will secure a 60 percent equity stake in WeWork, while a consortium of lenders will claim 20 percent, with the remaining 20 percent allocated to other stakeholders, including long-time investor SoftBank.
Neumann’s legal team indicated a potential challenge to the arrangement.
“After weeks of misdirection, WeWork has finally acknowledged its intention to sell the company to a consortium led by Yardi for a significantly lower value than what we continue to propose. Therefore, we anticipate strong objections to the approval of this plan,” stated a lawyer representing Flow, as reported by Commercial Observer.
Potential challenges could also arise from creditors who may receive minimal or no compensation from the bankruptcy proceedings. However, a committee representing unsecured creditors expressed support for WeWork’s new plan during a bankruptcy hearing on Monday. Objections were raised primarily by Neumann’s legal counsel, as well as several landlords and CoStar.
SoftBank played a pivotal role in WeWork’s rapid expansion as a private company, injecting substantial investments that, along with other funding sources, once valued the company at $47 billion at its peak. However, the company’s market capitalization has plummeted to $8 million, despite a 15 percent surge in its share price on Monday following the announcement.
In Chapter 11 bankruptcies, common stockholders typically face total loss, although share prices of insolvent firms may fluctuate significantly during the reorganization process.
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By Proptechbuzz
By Ravi Kumar