‘WeWork’ announced on Friday that it has decided to merge with blank-check firm BowX Acquisition Corp to go public, allowing the office-sharing business to achieve a stock market listing two years after its first try was unsuccessful.
WeWork’s merger with BowX, a specially modified acquisition company (SPAC), values the company at about $9 billion, down from $47 billion in a capital investment round led by Japanese conglomerate SoftBank Group Corp in 2019.
WeWork attempted an initial public offering later in 2019, but it was cancelled due to investor fears about the company’s business model and co-founder Adam Neumann’s management style.
Neumann eventually resigned from his position as CEO. According to WeWork, Sandeep Mathrani, the company’s current CEO, has cut costs by $1.6 billion.
“Sometimes you don’t choose the path, it chooses you. In December, BowX and other SPACS approached us,” Mathrani told CNBC in an interview. BowX’s Nasdaq stock was up 8% in morning trading on March 26, 2021.
WeWork’s biggest backer, SoftBank, will keep a majority stake in the business after the merger. According to a source familiar with the situation, SoftBank and other investors have agreed to a one-year lock-up on their shares. The merged company would be owned by existing shareholders to the tune of 83 percent.
SPACs, such as BowX, are shell companies that collect money through an IPO in the hopes of combining with an unnamed private company. The acquisition offers an alternative to a conventional IPO for the business being acquired.
WeWork’s 2019 IPO investors were spooked in part by losses that ran into the billions of dollars with no clear route to profitability.
WeWork has yet to break even. In 2020, its adjusted EBITDA, which is a measure of a company’s underlying profitability, was -$1.8 billion. WeWork estimates that this will be -$900 million in 2021, but that it will turn a profit of $500 million in 2022.
WeWork also had to contend with the COVID-19 pandemic, which caused many workers to work from home. WeWork’s sales for 2020 were flat at $3.2 billion, but the business and real estate industry analysts anticipate increased demand for the type of versatile offices offered by companies like WeWork following the pandemic.
Vivek Ranadivé, a former tech executive who also owns the Sacramento Kings in the NBA, will join the WeWork board of directors. (NBA legend Shaquille O’Neal is also a BowX advisor and works for CNN parent WarnerMedia’s Turner Sports division.) BowX co-CEO Vivek Ranadivé told CNBC, “We assume that WeWork is going to be the opportunity stock for the recovery,” he added.
WeWork aims to raise $1.3 billion in cash from the merger, which will be backed by the $420 million BowX received in its IPO in August and a $800 billion PIPE from investors such as Insight Partners, Starwood Capital Group, and Fidelity Management.
According to people familiar with the situation, BowX had planned to raise $500 million for the PIPE but had to raise more due to investor demand. WeWork’s financial advisor on the transaction was PJT Partners. BowX was briefed by UBS Group AG.
