Years after his dramatic ouster, WeWork co-founder Adam Neumann is looking to boomerang back with a potential bid to buy the flexible workspace provider out of bankruptcy.
In a letter to WeWork's legal advisers, the former CEO's new real estate startup, Flow, revealed an interest in acquiring WeWork or its assets and said it already has financial backing from prominent hedge fund Third Point and other investors. The New York-based company ousted the high-profile Neumann from the top job in 2019 after its first attempt at an initial public offering failed partly because investors had concerns about corporate governance under his leadership and a strategy that critics complained involved too much spending.
Financial details about the bid were not disclosed, but a lawyer for Neumann said in the letter, obtained by CoStar News, that WeWork has stonewalled the proposal.
“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,” Alex Spiro, a partner with New York-based law firm Quinn Emanuel, said in the letter. He added that WeWork's failure to provide the necessary information has "jeopardized" the coworking operator's ability to "explore alternatives to the [restructuring agreement] and has failed to maximize value for all stakeholders, the goal of any bankruptcy process."
The letter details other attempts Neumann has made over the years to help shore up financing for WeWork. None has gained traction, and it is not yet clear whether the latest attempt will go any further.
While the letter says financing is lined up for any possible takeover, Third Point said it has yet to make any final decisions.
“Third Point has had only preliminary conversations with Flow and Adam Neumann about their ideas for WeWork, and has not made a commitment to participate in any transaction,” the hedge fund said in a statement to CoStar News.
Neither Neumann nor Spiro immediately responded to CoStar News' requests to comment.
Slow Moving
The bid adds another layer of pressure for WeWork as the company faces allegations from its landlords that it is dragging out the bankruptcy process in order to avoid making rent payments. WeWork could be forced to take out a new bankruptcy loan to keep the company afloat as progress on its lease negotiations moves slower than expected, the company's legal team said this week in court papers.
Those negotiations and the ability to reduce its future rent payments are critical to the company's future. Yet landlords are becoming increasingly frustrated with the operator over what they claim are "hardball tactics" to get out of their financial obligations, said Kris Hansen, an attorney representing WeWork creditors.
The company has shown "painfully little progress" in negotiating revised lease terms with its landlords, all the while continuing to use its space and collect membership dues while failing to keep up with its rent payments, the attorney said.
After becoming one of the most valued startups in United States history at a peak $47 billion valuation based on a SoftBank investment, WeWork filed for Chapter 11 bankruptcy last year as a result of holding too many leases at too high a cost. The company, which has since been weeding through its portfolio to get rid of underperforming locations, is credited with creating the market for coworking space, but has struggled to keep up with competitors as it remains weighed down by expensive lease obligations.
Neumann co-founded the company in 2010, adopting the "growth at any cost" mentality prevalent through Silicon Valley's tech culture at the time that partly led to making the company the topic of an Apple TV+ miniseries called "WeCrashed."
WeWork adopted a formula of leasing and renovating office space to make it high end and modern, providing a mix of spaces that allowed for some desks to be rented individually on very short-term leases while in others companies could take larger portions of offices. When the COVID-19 pandemic began and lockdowns took effect, demand for coworking took an initial hit, later emerging as more people used to remote work wanted to go to an office outside city centers that were closer to where they lived.
In a response to CoStar News, WeWork said: "We continue to believe that the work we are currently doing — addressing our unsustainable rent expenses and restructuring our business — will ensure WeWork is best positioned as an independent, valuable, financially strong and sustainable company long into the future."
Cutting Expenses
Getting out from under its substantial lease obligations is a critical component to WeWork's financial future, the company has said, leveraging its bankruptcy filing in order to restructure its operations from top to bottom.
WeWork withheld as much as $33 million in January rent from some landlords, Steven Serajeddini, the coworking operator's attorney said in court papers. It's a strategy he claims has helped get some landlords to the negotiating table as the firm assesses which leases to retain and which to reject.
WeWork has so far looked to reject more than 90 leases across the United States. Since it filed for bankruptcy in early November, the company has restructured upward of 60 rental agreements around the world, an effort that translates to more than $1.5 billion in total rent savings.
Some WeWork landlords have claimed the company is simply withholding rent payments while making no attempt to renegotiate terms. A Brookfield Properties affiliate said in a court filing Monday that WeWork is subleasing office space in a Washington, D.C., building to another tenant, but the operator hasn’t paid the landlord even though it is receiving “six-figure” monthly rent payments from the sublessee.
WeWork’s creditors in court papers said the company has also failed to update its business plan or provide any details about how it will emerge from bankruptcy on more solid financial footing — something Neumann is said to believe he can fix.
By folding in Flow, Neumann's attempt to regain control of his former company would be enough to successfully restructure the WeWork and position it for future growth, according to the letter from Spiro.
“In a hybrid work world where demand for WeWork’s product should be greater than ever,” the result of combining the two companies “could significantly exceed” WeWork's value if it were to remain a standalone company, the letter said. "WeWork should at least educate itself about that potential and not preclude itself from maximizing value."