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WeWork Plows Ahead With IPO, Reshapes Board to Counter Skepticism

The company will revamp a stock structure that gives co-founder Adam Neumann vast control over its board.

(Bloomberg)—WeWork isn’t backing down from its embattled listing, announcing a series of governance changes it hopes will be enough to bolster its flailing valuation.

The company will revamp a stock structure that gave co-founder Adam Neumann unlimited sway over the board by cutting his vote count, and no member of his family will be allowed to sit on the board, it said in a regulatory filing Friday. WeWork will also announce a lead independent director by year’s end.

The moves aim to give potential investors a check on Neumann’s control of the company and address some of the most unusual dealings between founder and firm. But it left in place a rare three-class stock structure and Neumann still maintains a voting majority, so it’s unclear how much the changes will appease both investors and the banks in charge of managing WeWork’s IPO.

And questions remain about how investors will value the fast-growing, money-losing office leasing business that’s backed by SoftBank. Both of the company’s lead financial advisers -- JPMorgan Chase & Co. and Goldman Sachs Group Inc. -- have previously voiced concerns about proceeding with an IPO at a valuation that dipped as low as $15 billion, people briefed on the discussions have said.

The new filing revealed that Neumann will return any profits he receives from the real estate transactions he has entered into with the company, and that any chief executive officer who succeeds Neumann will be selected by board of directors.

The board will have the ability to remove the CEO, and the updated prospectus has taken out a clause that previously said Neumann’s wife will have a role choosing any new CEO. WeWork also picked Nasdaq as its listing venue.

WeWork, which leases and owns spaces in office buildings and then rents desks to businesses ranging from startups to large corporations, has raised more than $12 billion since its founding nine years ago and has never turned a profit.

WeWork had been targeting a share sale of about $3.5 billion in September, people familiar with the matter said in July. A listing of that size would be second only to Uber Technologies Inc.’s $8.1 billion listing this year.

After the company filed publicly for the offering in August, its valuation shrank amid investor scrutiny. SoftBank Group Corp., which with its affiliates is WeWork’s biggest backer, invested in January at a valuation of $47 billion.

WeWork has been driving ahead with its desire to IPO, in part to gain access to much needed capital. The company needs to raise at least $3 billion through an IPO to tap into an additional $6 billion credit line that bankers have been setting up in recent weeks. The facility requires the company to carry out its offering by Dec. 31, the people said.

Share Classes

The original IPO plan included three classes of common stock, with holders of Class A shares getting one vote per share, while Class B and Class C owners got 20 votes for each. This arrangement would have given Neumann the vast majority of the voting power.

The company is changing its high-vote stock from 20 votes to 10 votes a share. But it’s keeping the different classes, which it says “may result in a lower or more volatile market price” of its Class A common stock in part because certain indices like the S&P 500 exclude companies with such structures.

The high-vote stock will automatically decrease to one vote per share in the event that Neumann becomes permanently incapacitated or dies, something that would previously only have occurred if Neumann’s ownership fell to 5% or lower.

Rebekah Neumann, the CEO’s wife and a cousin of Gwyneth Paltrow, is listed as a founder, chief brand and impact officer of WeWork and founder and CEO of WeGrow, a corporate project to build and run private elementary schools.

The company already has taken some steps to improve its governance, such as adding a woman to its board and having Neumann return $5.9 million of partnership interests initially granted to him as compensation for trademarks used in a rebranding. Yet its IPO filing last month raised a variety of other concerns. Among them: The company paid Neumann rent and lent him money.

Neumann will also limit his ability to sell stock in each of the second and third years following this offering to no more than 10% of his shareholdings. WeWork’s Class A stock has been approved for listing on Nasdaq under symbol “WE”.

The New York-based company, which changed its name to the We Co. this year, disclosed in its filings that it had lost $2.9 billion in the past three years and $690 million in just the first six months of 2019. Its annual revenue, though, had more than doubled to $1.8 billion in 2018, compared with $886 million the previous year.

To contact the reporters on this story: Giles Turner in London at [email protected];

Gillian Tan in New York at [email protected].

To contact the editors responsible for this story: Liana Baker at [email protected]

Michael J. Moore

© 2019 Bloomberg L.P.

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