The We Company, WeWork’s parent company, has set up a special board committee to study financing proposals as a cash crunch looms.
The company is discussing a $5 billion financing rescue from its largest shareholder Softbank Group Corp (OTC: SFTBY), and its principal lender JPMorgan Chase & Co. (NYSE: JPM). The news was first reported by Reuters, citing four people familiar with the situation.
The committee, consisting of two members of The We Company board of directors, will represent the interests of all the company’s shareholders in its quest to urgently raise funds. Per Reuter’s sources, one of the members is Bruce Dunlevie, a general partner at WeWork shareholder Benchmark Capital. The second member is Lew Frankfort, the former CEO of a luxury handbag brand Coach, which is a subsidiary of Tapestry (NYSE: TPR).
The WeWork special committee will seek to protect the interest of minority shareholders in any funding deal in the company.
Why It Matters
Plagued by a series of issues, including investor concerns about worsening losses and its business model, WeWork’s valuation has taken a significant hit over the last month. The company’s estimated valuation reportedly dropped from $47 billion in January to as little as $10 billion in Sept. For context, WeWork secured a $6 billion funding in Jan. at an estimated valuation of $47 billion. WeWork canceled its planned initial public offering as a result of its ongoing operational and financial struggles.
According to the sources cited by Reuters, WeWork is at risk of running out of cash as early as November unless it secures new funds. As a result, the company is considering reducing the number of properties it leases, cutting as many as 2,000 jobs and scrapping a streamlined expansion plan.
Meanwhile, it's reported Softbank has proposed to invest a further $5 billion in WeWork. The Japanese technology conglomerate, founded by billionaire Masayoshi Son has already invested about $10 billion in the real estate startup. Softbank is also looking to renegotiate an earlier pledge for a $1.5 billion investment in the form of warrants due in April. This commitment was made at the valuation of $47 billion.
JPMorgan, on the other hand, is trying to secure commitments for financing from banks and bond investors for up to $5 billion, one of the sources told Reuters. While the American bank is yet to agree to underwrite the debt, WeWork is also waiting to see how much debt financing it can secure without diluting the ownership of existing shareholders before deciding on a financing approach.
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