WeWork has rebuffed previous offers by Adam Neumann to purchase his former company out of bankruptcy. The latest was for $1 billion in October 2022 for double the market cap of the company when it fell into bankruptcy. The attorney who manhandled Twitter to accept Elon Musk's offer and subsequent acquisition of the company is also representing Adam. Can WeWork ignore good-faith offers without recourse? Will Adam manage WeWork better this time without larger-than-life venture capital "investors" breathing down his neck? We are about to find out, stay tuned!
In November 2023, the Emerging Real Estate Digest wrote a piece on WeWork's bankruptcy reminding the reader that Coworking is Not the Holy Grail. The office woes in America are caused by the failure of American workers to return to the office, and corporations filled to the gills with executives without the gumption to demand it. Office-to-residential conversions won't solve the problem, nor will expanding coworking offerings.
Coworking is an old real estate business model of buying a building with one long-term liability and breaking the space apart to create numerous short-term offsetting leases or assets. Offsetting long-term liabilities with short-term leases works only so long as there isn’t an office oversupply or recession in the economy. Both scenarios create downward pressure on rents and terms achieved on new short-term leases signed, meanwhile the long-term obligations stay the same. The coworking offering is easily replicated and a competitor only need lease a large space, cut it up into smaller chunks, add an aesthetic, and go to market. WeWork attempted and failed to create moats by quickly gobbling up and fitting-out prime real estate sites using its seemingly endless supply of venture capital backing.
In 2019, WeWork had $47 billion of lease obligations on the books being offset by only $3.4 billion of signed leases with customers. Confounding this very serious asset and liability mismatch was the fact that WeWork’s liabilities to secure real estate extended for fifteen years on average, while its customers were committing to spaces at an average duration of only fifteen months.
WeWork never justified such lofty valuations. Adam Neumann receives the blame for WeWork's failure, but there is a case to be made that the investors are the problem. Adam had to make grandiose promises or else he never would have raised capital, and there are suggestions that major investment managers guided Adam to say the "right things" so they could unlock capital to shove into his pockets. How would you have responded if you were in Adam's shoes?
It's recently come to light that Adam would like to purchase the company he founded out of bankruptcy. According to a letter he penned to WeWork's advisors, his new real estate business, Flow Global, would like to buy the embattled company. Reports are that the letter, and information requests within, have been ignored. Flow Global has been making overtures to purchase WeWork since December 2023, but the only results have been cold shoulders. Alex Spiro, attorney to Adam (and Elon Musk incidentally), expresses this in a recent letter to the WeWork board:
“We write to express our dismay with WeWork’s lack of engagement even to provide information to my clients in what is intended to be a value-maximizing transaction for all stakeholders.”
Can WeWork's board simply ignore attempts to purchase a company? Watch for future legal wrangling akin to what Musk did to Twitter to force it to consider and ultimately accept his offer. WeWork turned down an offer from Neumann in October 2022 for $1 billion which was around double the market cap of the company when it fell into bankruptcy. Alex Spiro seems to be setting the stage to sue everyone involved based on this excerpt:
“In a hybrid work world where demand for WeWork’s product should be greater than ever... the synergies and management expertise offered by an acquisition by my clients could significantly exceed the value of the Debtors on a stand-alone basis.”
In addition to Twitter, the parallels with Dave Portnoy's sports gambling business are interesting to note. In 2020 Portnoy sold a majority stake in his business to Penn National Gaming for $163 million. In 2023, he reacquired control of the business for a pittance.