Last week, the real estate company formerly known as WeWork (now "The We Company") formally submitted the paperwork required for listing. The initial public offering, which We hopes will occur in September, must be among the most closely watched IPOs in what has been a contradictory year for highly anticipated IPOs.
On one hand, Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) failed to impress investors this year. On the other hand, the valuation of Beyond Meat (NASDAQ:BYND) has surpassed anyone's wildest expectations. So although there is widespread skepticism surrounding WeWork's venture into the public markets, it is difficult to foresee what exactly will happen on the day of the IPO. What the filing did reveal, however, is further evidence of the unconventional relationship between CEO Adam Neumann and the company that he founded.
Neumann has been accused of self-dealing in the past. Back in January, it emerged that he is an owner of some of the buildings rented by his company (WeWork does not actually own most of its properties but rents them from third parties). It is obviously ethically questionable for the CEO of a real estate company to be a landlord for that same company and to decide how much rent to pay himself.
This was addressed in the filing. The company stated that Neumann owns just four of the 528 WeWork locations, a small fraction of the total amount. Not material? Perhaps. But certainly not completely above board. Moreover, in three of those four cases, WeWork entered into an agreement with the landlord on the day that Neumann acquired his interest in the buildings.
Another eyebrow-raising moment occurred when it became known that in order to rebrand as "The We Company," WeWork paid $5.9 million for the trademark for "We," owned by We Holdings LLC, owned by Adam Neumann. The founder and CEO of a company directed that company to pay himself almost $6 million for the right to a trademark that he owned. Truly, we live in a golden age.
Finally, there is the matter of loans issued to Neumann by his company. On several occasions, WeWork issued loans to its CEO at extremely generous rates -- $7 million at 0.64% in 2016, and $362 million at 2.89% in 2019. While Neumann seems to have repaid these loans, the reasons they were issued in the first place remain unknown.
Borrowing money from one's own company is, of course, not illegal, nor is it always ethically questionable. But it does fit into a pattern of behavior that would make me nervous if I were a shareholder (and therefore part owner) of a business. And I think that this attitude should be shared by all investors when The We Company hits the public market.
Disclosure: The author owns no stocks mentioned.
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This article first appeared on GuruFocus.
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