WeWork’s Stock Imploded to 13 Cents Yesterday; Its Cult-Master, Adam Neumann, Cashed Out Years Ago and Is a Billionaire

[Gunnar Larson]

https://wallstreetonparade.com/2023/08/weworks-stock-imploded-to-13-cents-yesterday-its-cult-master-adam-neumann-cashed-out-years-ago-and-is-a-billionaire/


By Pam Martens and Russ Martens: August 10, 2023 ~

Adam Neumann
Adam Neumann, Chairman and CEO of The We Company in 2019

That office space company we warned our readers about so extensively in
2019, WeWork, collapsed to 13 cents a share yesterday. Its bonds were
trading at about 13 cents on the dollar.

WeWork’s stock has been on a steady decline since the company began to
trade publicly on October 21, 2021. The chart above shows how investors
would have fared in WeWork stock versus a 10-year U.S. Treasury note since
WeWork started trading in 2021.

The collapse in the share price this week came as a result of an 8-K filing
with the Securities and Exchange Commission on Tuesday in which the company
uttered these discomforting words: “…as a result of the Company’s losses
and projected cash needs, combined with increased member churn and current
liquidity levels, substantial doubt exists about the Company’s ability to
continue as a going concern.”

The reason we invested so much digital ink on WeWork back in 2019 was
because some very shrewd Wall Street lawyers and investment bankers were
planning to dump this dog on the American people as an IPO with an insane
valuation.

JPMorgan Securities LLC, a unit of five-felony-count JPMorgan Chase, and
Goldman Sachs & Co. were to be the lead underwriters on the IPO. Scott
Galloway, a professor at NYU’s Stern School of Business, wrote on his blog
at the time that “bankers (JPM and Goldman) stand to register $122 million
in fees flinging feces at retail investors….” The deal was so dodgy that
Galloway took to calling it WeWTF.

Wall Street On Parade called WeWork’s planned IPO “hype wrapped in
subterfuge.” We said “It’s a money-losing commercial real estate company
attempting to pass itself off as the Dalai Lama of office space rentals.
The company has never made a dime of profits and its losses spiraled to
$900 million in the first half of this year.”

To enhance its valuation, WeWork lamely attempted to suggest it was tied to
technological breakthroughs. We explained in 2019:

“We’re also going to have to excise ‘the extensive technology
infrastructure’ because what they’re really talking about is not Silicon
Valley breakthrough technology but jazzing up drab offices with beer taps,
microbrewed coffee, fruit-infused water and WiFi – the latter of which you
can get for free in any Panera’s, along with a table and chair, for the
price of a cup of herbal tea.”

In an attempt to give this lipstick-on-a-pig of an IPO added luster, WeWork
was represented by a very sophisticated law firm, Skadden Arps, Slate,
Meagher & Flom. The Wall Street bank underwriters were represented by
another sophisticated law firm, Simpson, Thacher & Bartlett. How all of
these legal eagles yawned at the conflicts of the then Chairman and CEO of
WeWork, Adam Neumann, was a question worthy of the napping SEC.

As then Chairman and CEO of WeWork, Neumann owed his loyalty to the company
under the past century of corporate law. But, instead, he was allowed to
buy up commercial real estate on his own behalf and then lease it back to
WeWork. According to the IPO prospectus, WeWork was leasing four properties
from Neumann on which it owed “future undiscounted minimum lease payments”
of “approximately $236.6 million….”

Neumann owned another six properties which WeWork might decide to buy from
him according to the prospectus. Unfortunately, Neumann had the right to
overrule the Board of Directors according to the prospectus:

“Adam [Neumann] controls a majority of the Company’s voting power,
principally as a result of his beneficial ownership of our high-vote stock.
Since our high-vote stock carries twenty votes per share, Adam will have
the ability to control the outcome of matters submitted to the Company’s
stockholders for approval, including the election of the Company’s
directors. As a founder-led company, we believe that this voting structure
aligns our interests in creating shareholder value.”

In 2019, Neumann was 40 years old, a former member of the Israeli military,
and had previously lived in a Kibbutz. Where did he get those huge sums of
money to buy up all that real estate? According to the prospectus, JPMorgan
Chase Bank, UBS, and Credit Suisse gave Neumann a $500 million credit line,
of which he had already tapped $380 million. In addition, JPMorgan Chase
had “made loans and extended credit” to Neumann “totaling $97.5 million
across a variety of lending products, including mortgages secured by
personal property and unsecured credit lines and letters of credit.”

The IPO in 2019 was so heavily panned by Professor Galloway, ourselves, and
numerous others that it had to be cancelled — a big embarrassment to
JPMorgan, Goldman and those big name law firms. Neumann resigned as CEO
shortly after the IPO was pulled. Two years later, WeWork did an end run by
going public by merging with a special-purpose acquisition company (SPAC).

As of this morning, Forbes puts Neumann’s wealth at $2.2 billion. He made
his wealth by selling shares in WeWork when it was still private.

Professor Galloway predicted four years ago how the end would come to
WeWork. He nailed it, writing: “WeWTF is an especially risky business going
into a recession, when the ability to variabilize costs is limited, but
revenue decline is unlimited. WeWTF has $47 billion in long-term
obligations (leases) and will do $3 billion in revenue this year. What
could go wrong?”

Galloway was also ahead of his time calling WeWork a “cult.” Last year,
Apple TV released a series called WeCrashed, depicting the cultish nature
of the company. It starred Jared Leto as Neumann and Anne Hathaway as his
wife, Rebekah. (See trailer below.)

The purpose of Wall Street is to be an efficient allocator of capital so
that businesses with real prospects for innovation, job creation, and
growth come to market to make America more prosperous and to keep it
competitive on the global stage. Unfortunately, we find ourselves writing
more and more about cults that are trading on the New York Stock Exchange.
(In addition to WeWork, see here, here and here.) And, of course, there is
the cult at the FTX crypto exchange which was gearing up to go public but
imploded under the weight of its massive frauds instead and is now in
bankruptcy proceedings. In that company, the key executives lived together
in a penthouse and took billions of dollars in personal loans for
themselves — money which belonged to its customers.

Something is deeply, deeply wrong with the structure of Wall Street and the
watchdogs that are supposed to be policing it.
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