Morning Markets: Adam Neumann’s ability to extract value from WeWork continues, even as the firm that made him famous deals with a shocking fall from grace, including a pulled IPO and the loss of billions of dollars in value.
The New York Times reported Tuesday that WeWork agreed to be taken over by SoftBank, a deal that would give the Japanese company control of the unicorn. SoftBank is planning to spend between $4 billion and $5 billion funding WeWork and buying existing shares, according to CNBC. The move cuts Neumann’s stake to “the low double digits,” and value WeWork between $7.5 billion and $8 billion pre-funding, according to the same report.
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Those who have been following WeWork closely have speculated and suspected that a takeover by SoftBank, which has poured billions into WeWork, would be the only way to save the company. But if you’re feeling overly sympathetic to Neumann for losing control of the company, don’t. Neumann is being paid about $1.7 billion as part of the deal, according to the Wall Street Journal, and that’s not including the $700 million Neumann already cashed out in share sales and loans borrowed against his stock.
It’s important to note, as Dan Primack tweeted, that Neumann controlled the board of WeWork. Neumann “never transitioned from 10-1 voting to 3-1 voting,” making the decision was his own, Primack said.
It’s also important to recall that Neumann essentially voted to oust himself as CEO. Now, he’s getting paid to leave altogether. It’s amazing the windfall that could come your way if you drive the right company into the ground.
The situation at WeWork appears to be catastrophic or at least coming to the edge of it. Yesterday, the Wall Street Journal reported that the rental giant “delayed [its] layoffs earlier this month because it couldn’t afford the severance” that the cuts would entail.
It’s hard to recall a company in similar straits managing to find nearly $2 billion with which to pay off its founder and former CEO merely to get rid of him. Certainly, with as many votes as he retained, Neumann was able to extract a pound of flesh on his way out. In the end, neither SoftBank (stuck paying lots of money to get rid of the person they were investing in what feels like moments ago) or Neumann (racing out the door of a burning building with a duffle bag of cash) look good.
The next question is what in the WeWork portfolio is capable of generating positive margins, and how many such elements there are. And if you tied them together, how big of a company do they form? SoftBank is betting that it’s worth a heck of a lot more than $8 billion, once the conglomerate and investing powerhouse finishes cleaning house.
All the company’s talk of raising consciousness and similar drek has proven to be worth less than zero. WeWork was a different sort of company, it’s true. But it was different from other, more successful companies in its ability to take external capital and turn it into personal gains for an insider while leaving other shareholders holding the bag.
WeWork was always an office rental company, running neat arbitrage on office space. It sold lots of folks on being something much more, though its books couldn’t hold up to later scrutiny. It’s enough to remind you of a company that failed for different reasons but also billed itself as the future.
Illustration: Dom Guzman