The New York University professor, author, and pundit Scott Galloway on Friday fiercely criticized WeWork and questioned why the company is still planning to go public with a reportedly massively slashed valuation and questionable fundamentals.
Galloway was responding on Twitter to governance changes at WeWork, which is set to float on the Nasdaq as The We Company.
In an updated filing to the Securities and Exchange Commission on Friday, WeWork said it would curb its CEO Adam Neumann’s voting power, making his voting shares worth 10 votes apiece rather than 20.
Other governance changes included the appointment of a woman, Frances Frei, to WeWork’s all-male board, the board’s ability to fire the CEO, and the promise that that none of Neumann’s family members can sit on the board.
Galloway wrote on Twitter: “So, @wework governance is no longer stage 4 cancer, but stage 3.9. Wait, I forgot, they now have a (gasp!) woman on the board. Let’s be generous and call it stage 3.8. SO progressive. What’s next, no child labor?”
The professor also speculated on reports that WeWork could go public at a considerably lower valuation than expected, at $10 billion to $12 billion. The firm was once valued at $47 billion, and an executive at its major investor SoftBank, Rajeev Misra, predicted last year that it could be worth $100 billion.
An initial public offering at that valuation would mean WeWork would go public for less than it has raised in private capital; WeWork has raised $12.8 billion, according to Crunchbase.
Galloway speculated on why insiders couldn’t afford for WeWork not to go public, despite the tanking valuation.
He suggested that one of the IPO’s lead banks, JPMorgan, would suffer reputational damage if the IPO did not go ahead, and would also eventually want to see a return on its loans to WeWork and Neumann. JPMorgan facilitated Neumann’s borrowings against his shareholdings and according to Bloomberg, provided $40 million in mortgages for his luxury homes.
It isn’t clear that JPMorgan would be paid back anytime soon, even with a $10 billion IPO, since those holding preferred shares would get paid first.
“JPM is in a corner, having loaned/bought hundreds of millions from Neumans secured by Adam’s common shares that, with no IPO, are worth zero as prefs stay in place if firm remains private–common shares sit behind preferred who are owed $12b+,” Galloway wrote.
SoftBank, the lead investor, would also want WeWork to float, even at a lower valuation, because the alternative is probably worse. SoftBank invested billions in WeWork at a $21 billion valuation in 2017, then again at a $47 billion valuation in 2019, suggesting it would take a big markdown if WeWork floated at the lower price.
“The investment firm, if we remains private, will have to mark their holdings down by 75%, and still have no liquidity–worst of both worlds,” Galloway wrote.
WeWork and JPMorgan declined to comment. SoftBank did not immediately respond to Business Insider’s request for comment.
Finally, Galloway noted that, per WeWork’s S-1 filing, WeWork is relying on its IPO actually taking place to secure a $6 billion debt package from 10 banks.
Galloway called on US regulators to investigate the IPO, suggesting that SoftBank was propping it up to flood the market with shares later.
He concluded grimly: “Prediction(s). We does not get out. This isn’t lipstick on a pig, but Botox on a lame Unicorn. If it does, this could be bad,,,really bad.
“The price will be artificial, sitting on a throne of lies, and the eventual stampede for the exit by Softbank and others, who bought stock only so they could (eventually) sell more stock, could send a chill across unicorn class and broader market.”