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WeWork isn't backing down from its embattled listing, announcing a series of governance changes to assuage investor concerns in an effort to bolster its flailing valuation.
The company will change its high-vote stock from 20 votes to 10 votes a share, and no member of co-founder's Adam Neumann's family will sit on the board, it said in a regulatory filing Friday. The company will also announce a lead independent director by year’s end.
It is unclear how much the new changes will appease both investors and the banks in charge of managing WeWork's IPO. Despite cutting Neumann's voting power, he still holds a majority in WeWork. Both of the company's lead financial advisers - JPMorgan and Goldman- have previously voiced concerns about proceeding with an IPO at a valuation that dipped as low as $15bn, people have said.
The new filing revealed that Neumann will give to the company any profits he receives from the real estate transactions he has entered into with the company, and that any chief executive officer who succeeds Neumann will be selected by board of directors.
The board will also have the ability to remove the chief executive officer. The updated prospectus has taken out a clause that previously said Neumann’s wife will have a role choosing a new CEO. WeWork also picked Nasdaq as its listing venue.
WeWork, which leases and owns spaces in office buildings and then rents desks to businesses ranging from startups to large corporations, has raised more than $12bn since its founding nine years ago and has never turned a profit.
WeWork had been targeting a share sale of about $3.5bn in September, people familiar with the matter said in July. A listing of that size would be second only to Uber Technologies Inc.’s $8.1bn listing and ahead of Avantor's $2.9bn IPO and the $2.34 offering by Uber's ride-hailing rival Lyft.
After the company filed publicly for the offering in August, its valuation shrank amid investor scrutiny. SoftBank, which with its affiliates is WeWork's biggest backer, invested in January at a valuation of $47bn. The company is now expected to be worth as little as $15bn in the IPO, people familiar with the matter have said.
WeWork has been driving ahead with its desire to IPO, in part to gain access to much needed capital. The company needs to raise at least $3bn through an IPO to tap into an additional $6bn credit line that bankers have been setting up in recent weeks. The facility requires the company to carry out its offering by December 31, people said.
Share classes
WeWork's original IPO plan included three classes of common stock, with holders of Class A shares getting one vote per share, while Class B and Class C owners got 20 votes for each. This arrangement would have given Neumann the vast majority of the voting power.
The high-vote stock will automatically decrease to one vote per share in the event that Neumann becomes permanently incapacitated or dies, something that would previously only have occurred if Neumann’s ownership fell to 5% or lower.
WeWork also made the unusual statement that no family member of Neumann’s will sit on the board. Rebekah Neumann, the CEO’s wife and a cousin of Gwyneth Paltrow, is listed as a founder, chief brand and impact officer of WeWork and founder and CEO of WeGrow, a corporate project to build and run private elementary schools.
The company already has taken some steps to improve its governance, such as adding a woman to its board and having Neumann return $5.9m of partnership interests initially granted to him as compensation for trademarks used in a rebranding. Yet its prospectus last month raised a variety of other concerns. Among them: The company paid Neumann rent and lent him money.
Neumann will also limit his ability to sell stock in each of the second and third years following this offering to no more than 10% of his shareholdings. WeWork’s Class A stock has been approved for listing on Nasdaq under symbol "WE".
The New York-based company, which changed its name to the We Co this year, disclosed in its filings that it had lost $2.9bn in the past three years and $690m in just the first six months of 2019. Its annual revenue, though, had more than doubled to $1.8bn in 2018, compared with $886m the previous year.
