WeWork's board, which does not have enough money for shared office space, was able to choose between two competing financial bailouts on Tuesday, experts said. One is offered by SoftBank and the other by a financial consortium led by JPMorgan Chase.
SoftBank, a Japanese technology group that is already WeWork's largest external shareholder, offers to acquire a controlling stake by accelerating an investment of $ 1.5 billion. It had planned to invest up to $ 3 billion next year To invest US dollars in shares of other investors, two people said. SoftBank also offers credit lending from a consortium of financial institutions, including itself, totaling $ 5 billion.
The potential cash inflow comes at a critical time for WeWork, which scrapped an IPO last month after Wall Street halted its huge losses – it had an operating loss of $ 1.4 billion in the first six months of the year with a turnover of 1.5 billion US dollars.
Adam Neumann, charismatic CEO of WeWork, was ousted on the eve of the IPO's withdrawal, as skepticism about the company's long-term viability increased. There was also investor concern over an unconventional corporate governance structure that gave Mr. Neumann tremendous control.
As one of the most famous startups in the world, WeBork was valued at $ 47 billion by SoftBank in January, but had considered selling shares in its company for an initial public offering valued at only $ 15 billion. SoftBank's recent offering to the company is estimated at just under $ 8 billion.
Under the leadership of Mr. Neumann, the company expanded so fast that it is the largest private tenant in Manhattan and an important force in London, San Francisco and other countries is major cities.
In recent weeks, attempts have been made to raise billions of dollars to keep going. In his I.P.O. WeWork said it had $ 2.5 billion in cash by the end of June, but also announced it was devouring hundreds of millions of dollars each month.
SoftBank, which has invested around $ 10.5 billion in WeWork, has more than its investment in the company at stake. A collapse of WeWork could hinder SoftBank's efforts to launch a second Vision Fund, a continuation of its $ 100 billion technology investment fund.
JPMorgan also maintains extensive relationships with WeWork. It was one of the main insurers of the broken I.P.O. and granted Mr. Neumann large loans. The bank had discussions with WeWork to renegotiate a $ 6 billion financing package tied to the public offering.
WeWorks need for cash is behind the urgent efforts. The company's rapid expansion requires a steady flow of money to pay the rent and renovate new locations.
In the 18 months to the end of June, WeWork spent nearly $ 4 billion to finance operations and expand into new space. All this would not have been possible without a huge cash flow from SoftBank.
The I.P.O. and loans that depend on supply should take up to $ 10 billion. WeWork must now try to make do with a much smaller financial infusion.
Some Wall Street analysts had estimated that WeWork will run out of cash at its recent growth rate in the middle of next year. However, other experts claim that the company is already facing a financial shortage.
Vicki Bryan, Managing Director of Bond Angle, a research firm, said WeWork might have only been able to claim $ 1.5 billion of the $ 2.5 billion it allegedly had by the end of June. The remainder of the money appears to be limited as it included collateral for customers or was held by the company's subsidiaries.
In the first half of the year WeWork consumed about $ 1.5 billion. If the company continues to spend money at this rate, it may have used up most of its unrestricted cash.
When it eventually takes control of WeWork, SoftBank would have to make some tough decisions quickly. It could try to stop WeWork's expansion to cut costs. The co-chief executives who replaced Mr. Neumann have begun to cut costs and have moved to close or sell some departments and assets, including a private school in Manhattan.
But that might not be enough to stabilize the business. SoftBank may also have to start closing WeWork's least profitable areas and dismissing a large number of employees. The company employed more than 12,500 people at the end of June.