Adam Neumann’s skill at wooing investors and bankers powered WeWork from a tiny start-up to a continent-spanning co-working giant that touched a $47bn valuation before a crash that led to his abrupt exit in 2019.
This week, the charismatic co-founder reappeared, looking to convince a new set of financial titans to let him lead WeWork out of bankruptcy. This time, though, they expressed more scepticism about what he can pull off.
The news that the entrepreneur and his investment vehicle were publicly pushing WeWork to share financial details so they can evaluate a bid caught creditors by surprise. It has added to the chaos in an already messy bankruptcy process, where WeWork is negotiating with landlords to shed unprofitable leases.
None of the creditors, advisers and other people involved in WeWork’s bankruptcy who the Financial Times spoke to would comment on the record, given that they are in the midst of legal proceedings.
But few of them believe Neumann’s gambit gives him a strong chance of regaining control of a business that still dominates the co-working industry but is plagued with problems tracing back to his time at the top.
Neumann’s return has raised thorny questions for creditors — including his one-time champion, the Japanese investor SoftBank and its chief executive Masayoshi Son. It could also complicate a bankruptcy process that is draining WeWork’s cash reserves as it racks up legal bills, advisory fees and unpaid rent obligations to landlords.
“The issue I have with his approach is that not only has it not achieved what he’s trying to accomplish, which is us engaging in a process prematurely, but it also confuses his landlords,” one person involved in the bankruptcy proceedings said.
“He’s late, with very little plan and his timing is abysmal. And we’ve told him that,” this person added. “He’s just not hearing it.”
On Sunday, WeWork filed a preliminary restructuring plan consistent with the deal it had struck with creditors at the outset of the bankruptcy in November. The company said it had been aggressively negotiating or rejecting leases since then, slashing its annual rent expenses by more than $330mn.
People close to WeWork said it had no advanced conversations with Neumann and that it was proceeding with its previous plan to hand over a restructured company to creditors by wiping away nearly all its $4.2bn of debts in bankruptcy. But it is a common tactic for outsiders in bankruptcy processes to write a public letter in order to get attention from the court or other stakeholders.
Neumann’s overtures, including through his property venture Flow Global Holdings, have found some backers who see the potential value in partnering with him. Dan Loeb’s Third Point and Seth Klarman’s Baupost Group, two of the biggest names in the hedge fund industry, have held preliminary discussions with Neumann’s team about possibly backing his efforts, according to people familiar with the matter.
The details of their plans have not been fully sketched out to the creditors who have first claim on WeWork in the bankruptcy. But those creditors have drawn their own conclusions from their conversations with Neumann and his team.
Neumann, who left WeWork a billionaire as SoftBank took control of the struggling company, has proposed a $200mn financing, according to the letter sent by his lawyers.
That would help WeWork cover its expenses during a bankruptcy that has proved more costly than expected. But there is near certainty that creditors — and the company — will refuse the offer, even if they have a fiduciary duty to consider Neumann’s proposal if it could lead to the best chance of existing creditors recovering their money.
Such fresh bankruptcy financing could help determine who comes out in control of the business, given its likely seniority to WeWork’s existing debts. A long list of creditors, including SoftBank, King Street, Brigade Capital Management, BlackRock, Sculptor Capital Management and Capital Group, already came to an agreement last year with the company on how it should restructure its debts.
While those creditors may be loath to pump more cash into WeWork, they understand that extra investment is critical to remain in control if and when it emerges from bankruptcy. They have baulked at the prospect of giving that up to someone they view as an interloper.
One person involved in the process said of Neumann’s entry, “I’m biased but I think they’re bottom fishing and hoped they could come in and buy people’s debt for cents on the dollar and own the company through the debt and I don’t think anyone is willing to entertain that.”
Neumann has not yet proposed a deal to take the company over. But he has since last year sought information from WeWork that would help him decide if and how he could structure a takeover offer. The company has not yet played ball, according to Neumann’s lawyers at Quinn Emanuel.
“Throughout this time, my clients consistently expressed their sincere interest in purchasing WeWork or its assets out of bankruptcy, and/or providing the debtors with [debtor in possession] financing,” they wrote in their letter to WeWork’s counsel.
In a world of hybrid work that should boost demand for WeWork’s product, they argued, an acquisition by Neumann’s group could bring value-creating “synergies and management expertise”.
Neumann’s lawyers added that the $200mn financing proposal was completed at the company’s suggestion, and that they had drafted a non-disclosure agreement so Neumann and his team could “continue working on a purchase proposal”.
WeWork has said it and its advisers “always review those approaches with a view to acting in the best interests of the company”.
Ultimately, it is likely that the proposed $200mn financing would be supplemented by an offer to buy some debtors out so Neumann and his backers could emerge from the bankruptcy in control of WeWork, people familiar with the company’s current creditors said.
“The decision [creditors] have to make is would I rather take the equity [in WeWork] and play for that upside or would I rather take the cash offer I’m being given [by Neumann]?” one person involved in the deal said. “2019 is still fresh in our minds.”
The vast majority of senior creditors have signed an agreement to work in tandem, and while it is possible that one lender could try to get out of the creditor agreement, it is highly unlikely.
One person involved in the process said landlords and unsecured creditors, who are likely to be wiped out in the restructuring, may welcome Neumann’s appearance simply to shake up a process that has been painful for them. This person noted that WeWork had not yet presented a business plan or a valuation of a reorganised company.
Even then, that is unlikely to have much impact, as these junior creditors have little sway over the proceedings that are unfolding in a New Jersey courthouse.
Neumann must also contend with the fact that at least one of the potential financiers he named in his letter — the hedge fund Third Point — has said its conversations about working together have been “preliminary”, casting doubt on whether it will prove an enduring partner.
Baupost told the FT it does not “comment on rumours or speculation”.
A successful bid, though, would not just return Neumann to the company he built; it could see him working again with the biggest of the investors he once charmed.
SoftBank, which has pumped more than $16bn into WeWork since 2017, has lost billions of dollars on its investment and had its reputation badly tarnished by its dealmaking with Neumann. While SoftBank joined a meeting with Neumann and Third Point last year, Son’s firm has not indicated that it is keen to go back into business with someone it settled litigation with less than three years ago.
SoftBank declined to comment, but one person at the Japanese group said it had tried to take an unemotional approach to the restructuring and has held conversations with several investors about recapitalising WeWork, noting its fiduciary responsibility to its shareholders to maximise their recovery.
There is another option creditors, including SoftBank, are keen to pursue: a sale of WeWork after it emerges from bankruptcy. Preliminary conversations on that idea have already started, according to people briefed on the matter. But they are with other parties, and creditors do not believe such a sale would involve Neumann.