WeWork has been in crisis for years. According to media reports, the co-working provider is now expected to file for bankruptcy next week. Is the once celebrated start-up threatened with extinction?
The shares of the once celebrated office space provider WeWork have collapsed following a media report about alleged insolvency plans. The price halved in early US stock market trading on Wednesday. The Wall Street Journal wrote on Tuesday, citing informed people, that WeWork was preparing to file for bankruptcy with creditor protection next week. “We do not comment on speculation,” a WeWork spokesperson said when asked about the report.
A few years ago, WeWork became a warning example for grossly overvalued US start-ups and has recently been in trouble again. As early as August, the company admitted “significant doubts” about its continued existence in view of its losses and expected cash requirements.
On Tuesday, WeWork said it had agreed to an additional one-week delay with lenders for further discussions. After the company failed to repay a debt due at the beginning of October, a 30-day period began after which insolvency could be officially declared.
Corona caused the business model to collapse
The idea behind WeWork is to rent office space with shared infrastructure to start-ups and entrepreneurs in so-called co-working spaces. Thanks in part to clever marketing by the founders, investors invested in WeWork at a total valuation of up to $47 billion.
With this reputation as one of the most valuable start-ups, WeWork wanted to go public in 2019 – but instead of a triumph, there was a flop. The deeper insight into the business in the stock market prospectus caused large investors to avoid the loss-making company.
The debacle at the time was particularly expensive for billionaire Masayoshi Son’s Japanese company Softbank. Softbank and its Vision investment fund, which was backed by Saudi Arabian money, had secured a 29 percent stake in WeWork for nine billion dollars. When the IPO collapsed in 2019, Softbank raised another $9.5 billion to increase its stake to 80 percent and force out the controversial co-founder and boss Adam Neumann.
But even under the direction of Softbank, WeWork remained unlucky. During the corona pandemic, offices around the world emptied because people worked at home. Even after the pandemic subsides, WeWork is struggling to fill its office space. At the same time, rental costs for buildings have to be paid and debts have to be serviced. In 2021, WeWork made it onto the stock exchange in a detour – by merging with an already listed blank check company. On Wednesday, WeWork was still worth around $60 million with the price drop.
Source: Stern
