WeWork to Go Belly Up? SEC Filing Shows Bankruptcy a Near-Certain Option

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WeWork, which redrew rules in the corporate office space management in the pre-Pandemic days, has said it is likely to go bankrupt, capping years of financial struggles. The Softbank-backed co-working start-up, which was once valued at $47 billion, has admitted in an SEC filing that it is doubtful of its existence going forward. "Our losses and negative cash flows from operating activities raise substantial doubt about our ability to continue as a going concern," the company said.

Stunning Collapse

Analyst say the collapse of WeWork has been in the making as the Covid-19 pandemic upset the conventional corporate office space rules and companies terminated their leases with WeWork as they asked employees to work remotely from homes. Then came the global economic crisis that cut spending and led to large-scale layoffs.

WeWork West Monroe Street Chicago
WeWork West Monroe Street Chicago YouTube Grab

"Fewer and fewer companies from mature large-cap businesses to startups are willing to enter into long-term leases for geographically fixed spaces," WeWork's interim CEO David Tolley said on Wednesday.

WeWork said it may have to explore strategic alternatives including relief under the U.S. Bankruptcy Code if it is not able to improve its liquidity position. "If we are not successful in improving our liquidity position and the profitability of our operations, we may need to consider all strategic alternatives, including restructuring or refinancing our debt, seeking additional debt or equity capital, reducing or delaying our business activities and strategic initiatives, or selling assets, other strategic transactions and/or other measures, including obtaining relief under the U.S. Bankruptcy Code," the company said in the filing.

wework expands in southeast asia via singapore
WeWork expands in Southeast Asia via Singapore. Reuters

Setback for Masayoshi Son

WeWrok's current market capitalization is a mere $500 million after its stock price tumbled 26 percent to 15 cents following the SEC filing that revealed the dire straits the company is in. WeWork's stock has been trading below $1 since March.

On Wednesday the shares plunged again, hitting 13 cents, while the market cap touched a dismal $260 million.

WeWork was founded in 2010 by Adam Neumann, and Japanese billionaire and Softbank chief Masayoshi Son was among the early backers of the enterprise. Neumann's business model was to lease out large office spaces on the long-term and let them out to companies for the short-term.

Son pumped billions of dollars into WeWork but later admitted that Softbank's investment in WeWork was 'foolish'. Neumann left the company in late 2019 after a botched bid at launching an IPO.

Masayoshi Son
Masayoshi Son wikimedia commons

In October 2019, SoftBank announced a massive deal to take control of co-working start-up WeWork and let founder Adam Neumann cash out his holding. The multi-billion dollar financing package announced by the Japanese conglomerate included $5 billion in new financing and another $3 billion in a tender offer for existing shareholders. SoftBank also said it would speed up an existing $1.5 billion financing commitment.

The development came after WeWork suffered a setback in its attempt to go public. There had been rumours that SoftBank, which already owned a third of WeWork, was interested in taking controlling stake in the co-working company. Neumann owned an estimated 18 percent in the company at the time of the proposed IPO. "SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work. WeWork is at the forefront of this revolution," Masayoshi Son had said at that time.