Morning Markets: Look, the Mueller hearing starts in eight minutes but this matters. So read on.
Good morning and welcome to a big day in American democracy. But all that’s small beer compared to what WeWork is up to, namely pressing ahead with its IPO more quickly than expected. For us market observers and scribblers, this is welcome news.
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Why? Because the WeWork IPO will answer a number of questions regarding the SoftBank Vision Fund’s investing acumen; the public market will put a debated private-market valuation to the test; it will act as a heat check for the public market’s appetite for high-loss companies looking to raise billions through an IPO.
Here’s the news item, courtesy of the excellent Wall Street Journal:
WeWork Cos. is aiming to go public in September, earlier than many investors had expected, after boosting a loan facility the office-space manager hopes will pave the way for the listing.
The loan facility, which we covered here, should provide a sheaf of cash to the hungry company; by raising capital through debt, WeWork can raise less in its IPO and still fund itself. The move could limit shareholder dilution by cutting the number of shares needed to be sold in the debut itself.
Why is the company racing ahead with its offering when its latest financial report still contained stiff losses? Recall that Uber and Lyft have struggled after going public this year while running yawning deficits. Because the firm wants to get out while the getting is as good as it will be. The Journal makes this plain:
Indeed, one reason for the September launch target is executives at WeWork are worried that the good times won’t last, with the U.S. stock market trading near records.
This is easy to understand. WeWork wants to defend its private valuation, as it has sold lots of stock at those prices. If it has to go public at a lower price, it will have to sell more of itself to generate the proceeds required to float its operations. This makes its growth costs more expensive in equity terms.
And, if the company goes public and slips, it could limit its ability to borrow if market sentiment sours. But! If the company goes public when the public market is enthused about tech stocks (here’s some more context), then it may be able to fetch a higher price, allowing it to sell fewer shares in its debut, limit dilution, and defend its extant shareholders’ (and employees’!) stakes in the business.
So, get hype, WeWork is likely going public not just this year, but this quarter.
Illustration: Li-Anne Dias