The disastrous mess behind WeWork's postponed IPO, explained

The We Company is unlikely to go public within the next few months after a disastrous month that came to a standstill when SoftBank asked for the IPO to be shelved, followed by CEO and founder Adam Neumann being ousted from his position. Initially the S-1, a document that is required before a company can go public, was filed in August

SoftBank is a Japanese multinational holding company that’s invested and committed $10.65 in the startup, according to Bloomberg. That means it owns a 29 percent stake in the company, making it the second largest shareholder, behind Neumann.

📸:  Flickr

📸: Flickr

Operating more than 790 locations in 35 countries, The We Company operates coworking spaces, a private school and housing through its WeWork, WeGrow and WeLive subsidiaries.

The coworking company has been under immense scrutiny since it filed to go public, because of questionable business dealings and conflicts of interest, among other things:

  • Neumann trademarked and charged for the rights to the word “We”, collecting $5.9 million before getting caught and paying it back

  • WeWork loaned several execs, including Neumann, millions of dollars, which all except one paid back to the company (the one in question was forgiven)

  • Neumann cashed out $700 million in stock options before the IPO — a move that’s unusual since founders generally wait until after the company goes public if they think the stock will increase in value

  • The CEO on several occasions had purchased buildings before leasing them back to WeWork, reports The Wall Street Journal, something that would usually be a conflict-of-interest

The biggest reason We needs the IPO to work is that it has signed a deal with more than 10 banks to raise $6 billion in debt. But the money will only be unlocked if and when the IPO happens, making it the most important thing for the company.

📸:  Flickr

📸: Flickr

However, the company’s been plagued by scandal after scandal over the last few months, ranging from conflicts-of-interest to the CEO stepping down and SoftBank calling for the IPO to be put on hold:

Neumann ensures his control

Like other CEOs, Neumann holds shares that allow him to have extra votes on the board. But his were to be worth 20 votes per share — double the number typically held by other people in the same position, according to Business Insider.

These votes grant execs extra voting power, guaranteeing him control of the company even after it was to go public. They were planned to be Class B and C shares, nearly all of which would be controlled by Neumann, while Class A shares would be traded publicly.

Morgan Stanley pulls out

US-based investment bank Morgan Stanley stepped down from its role in the WeWork IPO after it was passed over for the role of top underwriter, Bloomberg reported. The bank wouldn’t give as much debt financing as the startup was seeking from key lenders, leading to JPMorgan Chase & Co. being named as the top bank involved — making JP eligible for up to more than $120 million on a 3.5 percent fee assumption.

SoftBank calls for IPO postponement

The biggest shareholder in the company, SoftBank, called for the IPO to be postponed because of a lack of investor interest. The Wall Street Journal reports that WeWork was considering slashing its valuation from $47 billion to $20 billion — one of the initial signs that something wasn’t right with the IPO process. Then, it was revealed that The We Company was considering a valuation as low as $10 billion for its IPO, Reuters reports.

Adam and Rebekah are removed from ‘We’

Both have been removed from the company and barred from serving on the board, with the former describing it as in the “best interests” of the company in a statement to The Wall Street Journal. Adam will still remain affiliated with the company as a non-executive chairman.

Neumann has agreed to a 10 percent limit on the amount of stock he can sell in the second and third years after the IPO, and will pay back the profit he made from the real estate deals with the company. The shares he owns with the company will be valued at three votes per share instead of between 10 to 20, as initially proposed.

Hiring an independent lead director

The company announced it will be hiring an independent lead director before the end of the year, presumably to work on the IPO, which will be listed on the Nasdaq.