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WeWork $ 47 Billion Valuation: SoftBank Fiction



Masayoshi Son

Alessandro Di Ciommo | NurPhoto | Getty Images

When professors in business schools write WeWork case studies the years from now, one of the biggest practical lessons could be this: WeWork should have taken far less money from SoftBank's Masayoshi Son.

WeWork's situation over the past several months has thrown SoftBank into the role of mafia boss. SoftBank invested a lot of money ̵

1; $ 10.65 billion – in a company that it expected to go public at a valuation of more than $ 47 billion. As anyone who has seen a mafia movie knows, if you take money from the godfather, you better deliver.

The irony is that Neumann really failed to deliver for Son. Sure, Neumann's inventions and possible illegal activities have thrown him off as an irresponsible CEO. But it's not as if he mismanaged WeWork between January when he accepted Softbank's $ 47 billion valuation, and September, when WeWork prepared a stock exchange listing.

Neimann also failed to deliver for its employees and other investors by selling too much of WeWork to SoftBank at an unrealistic price. By selling nearly 30% of the company's equity to SoftBank and associated funds, Neumann lost control of its company when Son decided WeWork would be better off without him. Son's move against Neumann last month cost him the CEO's job and will probably cost him the chair.

But American capitalism is a little different from the mafia. Instead of disposing of Neumann's body, SoftBank will pay Neumann up to $ 970 million for its equity, depending on how much it wants to sell, and an additional $ 185 million as a "consulting fee", which is really just a bonus for taking SoftBanks bail package over JP Morgan's $ 5 billion alternative debt package.

When Neumann took investments from SoftBank in November 2018 ($ 3 billion) and January 2019 ($ 2 billion), the WeWork value jumped from $ 20 billion to $ 47 billion. In other words, SoftBank's investment put WeWork worth $ 27 billion higher than it had been.

It could (should?) Have been a warning for investment banks and WeWorks's board that other investors might not have agreed that the company was worth $ 47 billion. Instead, J.P. Morgan, Goldman Sachs and Morgan Stanley could find investors willing to value WeWork between $ 60 and $ 100 billion. And WeWork continued with a poorly recommended stock exchange listing that has brought the company weeks away from bankruptcy due to its aggressive expansion and outstanding leases.

Even $ 20 billion in 2018 was set by SoftBank, which invested $ 4.4 billion, in connection with the $ 100 billion Vision Fund, in a Series G. 2017

[19659002] You have to go back to 2016 to find a valuation of WeWork that is not affected by SoftBank – a $ 690 million round led by one of China's largest hotel companies, Shanghai Jin Jiang International Hotels. That Series F round valued WeWork at $ 16.9 billion.

If WeWork had peaked at a private valuation of $ 16.9 billion instead of $ 47 billion, the company would almost certainly trade publicly today. Although public investors had rejected a $ 17 billion valuation, WeWork would probably be in the same boat as Uber and Slack (other SoftBank investments!) – big tech companies that made it out the gate before they stumbled. Neumann can still be CEO, and his company wants the luxury of public revenue to either continue to expand or find a faster path to profitability.

SoftBank now controls WeWork after acquiring up to $ 3 billion more in equity and accelerating a $ 1.5 billion equity commitment. Softbank and the syndicates are also giving $ 5 billion in debt to WeWork to help push it toward profitability and hope to go public in the future. And Neumann, the company's visionary, is out.

But it is impossible to put much faith in WeWork's new monetary valuation, which will be between $ 10 and $ 12 billion, according to sources familiar with the matter. Why? Because it is again based on a SoftBank only investment.

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