NYU professor, author, and pundit Scott Galloway has fiercely criticised WeWork and questioned why the company is still planning to float with a reportedly massively slashed valuation and questionable fundamentals.
Galloway was responding on Twitter to governance changes at WeWork, which will float on the Nasdaq as The We Company.
In an updated filing to the Securities and Exchange Commission on Friday, WeWork said it would curb its CEO Adam Neumann’s voting power, with his voting shares now worth 10 votes apiece rather than 20. Other governance changes include the appointment of a woman, Frances Frei, to WeWork’s all-male board; the board’s ability to fire the CEO; and the promise that that none of Neumann’s family can sit on the board.
Galloway wrote on Twitter: “So, @wework governance is no longer stage 4 cancer, but stage 3.9. Wait, I forgot, they now have a (gasp!) woman on the board. Let’s be generous and call it stage 3.8. SO progressive. What’s next, no child labor?”
The professor also speculated on reports that WeWork will go public at a considerably lower valuation than first expected, at $10 billion to $12 billion. The firm was once valued at $47 billion and an executive at its major investor SoftBank, Rajeev Misra, predicted last year it could be worth $100 billion.
An IPO at that valuation would mean WeWork is going public for less than it has raised in private capital. WeWork has raised $12.8 billion, according to Crunchbase.
Galloway speculated on why insiders couldn’t afford for We not to go public, despite the tanking valuation.
He suggested one of the IPO’s lead banks, JPMorgan, would suffer reputational damage if the IPO did not go ahead. It will also eventually want to see a return on its loans to WeWork and Adam Neumann. JPMorgan facilitated Neumann’s borrowings against his shareholdings and, according to Bloomberg, the bank provided $40 million in mortgages for his luxury homes.
It isn’t clear that JPMorgan will be paid back any time soon even with a $10 billion IPO, since those holding preference shares will get paid first.
“JPM is in a corner, having loaned/bought hundreds of millions from Neumans (sic) secured by Adam’s common shares that, with no IPO, are worth zero as prefs stay in place if firm remains private — common shares sit behind preferred who are owed $12b+” he wrote.
Lead investor SoftBank will also want WeWork to float, even at a lower valuation, because the alternative is probably worse. SoftBank invested billions in WeWork at a $21 billion valuation in 2017, then again at a $47 billion valuation in 2019, suggesting it’ll take a big markdown if WeWork floats at the lower price.
“The investment firm, if we remains private, will have to mark their holdings down by 75%, and still have no liquidity — worst of both worlds,” Galloway wrote.
Business Insider has reached out to SoftBank for comment. JPMorgan declined to comment.
Finally, per WeWork’s S-1 filing, Galloway noted that WeWork is reliant on its IPO actually taking place to secure a $6 billion debt package from 10 banks.
Galloway called on US regulators to investigate the IPO, suggesting that SoftBank was propping up the IPO in order to flood the market with shares at a later date.
He concluded grimly: “Prediction(s). We does not get out. This isn’t lipstick on a pig, but Botox on a lame Unicorn. If it does, this could be bad,,,really bad.
“The price will be artificial, sitting on a throne of lies, and the eventual stampede for the exit by Softbank and others, who bought stock only so they could (eventually) sell more stock, could send a chill across unicorn class and broader market.”