If the main lose is on the leases, isn't that where corporate lawyers involve or foresee that kind of situations? Are they still paying all of the lease during pandemic?
Victoria's Secret managed to put a "you must continue paying even if there's a pandemic" clause in a contract signed _in February_ so... it wouldn't surprise me if We Work still had to pay rent given how well (read: not well) the company is run.
When the CEO owned some of the buildings they were leasing, I can imagine a scenario where the lawyers were told not to look too hard at the paperwork...
It was mentioned in Matt Levine's columns of the 23rd and 24th. Unfortunately, I assume those are behind Bloomberg's paywall. Here is a quote from L Brands courtesy of Levine:
"Sycamore ignores a fundamental problem with its apparent case of buyer’s remorse: At the time the parties negotiated the Agreement, the world was already well aware of the existence of COVID-19, and the parties agreed that Sycamore would bear the risk of any adverse impacts stemming from such a pandemic. … Sycamore and its representatives may wish that the world did not have to face the pandemic that now confronts us, and may regret that they did not negotiate the allocation of pandemic risk differently in the Transaction Agreement. But having made that commercial choice, Sycamore must now live by it."
A landlord would not go for a rental contract that places the risk of something like a pandemic solely on their own shoulders. Those landlords more often than not financed the property (development, property costs, construction) with long term loans themselves, so they have to repay that with interest in top of what the taxman wants, payroll, etc.
Limited liability companies cannot have a value less than zero in general. However, WeWork’s lawsuit against SoftBank could very well be successful; effectively making it negative for SoftBank.
WeWork's lawsuit against softbank only succeeds if it lives long enough to get to a court decision, and Softbank are in quite a strong position to stop that happening.
When the final lifeline for your company is suing your primary investor over competing definitions of just how terrible the company is performing then I’m not sure it’s worth much for either party!
There is dispute as to whether Dirksen said that [1]. According to Wikiquote, when asked whether he had said it, Dirksen said: "Oh, I never said that. A newspaper fella misquoted me once, and I thought it sounded so good that I never bothered to deny it."
The shame is that they will probably blame all of this on the Pandemic, rather than fundamental issues with the business that were becoming clear long before the virus hit.
Not really. Their thesis disintegrated way before this. Their thesis was that that even in a market with weak network effects, customer acquisition costs are high enough that you can spend your way into such a dominant mindshare that you end up with monopolistic or oligopolistic returns. The thesis is basically trashed at this point. The upfront costs are too high and the mindshare dominance is too fragile.
A lot of businesses will hide their failure under the pandemic. This is really bad, since people with wrong business models in upside trends, will get access to benefits and help in downside periods by having an excuse for their failure, encouraging ineffective business models.
The blame for this falls solely on the laughable prospectus they issued ahead of the IPO. I was relieved that everyone in the finance world appeared to call it for what it is.
While I hope the BOJ and the Japanese taxpayer aren't on the hook for Softbank's hubris (not just with WeWork but also Oyo and Uber), I am glad that pension and mutual funds won't have any exposure to this flaming pile of garbage.
Foodora just sort of did this with their announcement of exiting the Canadian market. That combined with the labour action they faced, though they were even somewhat publicly mum about that one.
The highly leveraged conglomerate has been forced into selling major assets to raise funds, but could receive a big boost from the Bank of Japan’s plan to expand corporate bond buying, which would support its predilection for borrowing.
The Japanese taxpayer (Yen-holder) having to support the losses of Adam Neumann's personal money tree seems pretty crazy to me.
This happens all the time all over the World, the more you learn about it the more you lose "faith" in whatever you're doing.
But it's all psychology 101 really, once you are viewed as "too big to fail", everyone contributes to your gigantic scam like a nervous peasant and they'd rather do it forever than take the hit now and let it burn.
I might be missing the nuance here but how is WeWork "too big to fail"?
While many were against the 2008-09 bailouts, you could at least see the logic of why the cost of the wake left behind from a company like General Motors radically reorganizing or dissolving would be worse than the cost of bailing them out.
What happens if WeWork dissolves? Softbank and its investors lose a couple billion. They'll survive. WeWork owns some real estate and would leave behind office space that's already built out for short-term leasing.
They'd be leaving behind something that can be mostly done turn-key by the next owner, hopefully on a smaller scale, with less ambitious growth expectations. They wouldn't be leaving behind an entire supply chain that extends well beyond themselves.
GP is talking about SoftBank. With that kind of debt it's likely that SoftBank will need to get bailed out by the Japan government, i.e. Japanese tax payers.
"While many were against the 2008-09 bailouts, you could at least see the logic of why the cost of the wake left behind from a company like General Motors radically reorganizing or dissolving would be worse than the cost of bailing them out."
It isn't logic grounded in some empirical truth. Bailouts - who gets them, as well as what would happen if not, are so subjective that there's no fair way to even go about it.
What's worse is to perpetuate a culture, model, industry that doesn't deserve to continue to operate. And by deserve, it's not my opinion, rather logic of the market dictating things.
As if that wasn't even, bailouts reward poor business practices - someone please prove otherwise!
Softbank walked away from the planned bailout of Neumann, so that $1Bn golden parachute for Neumann is long gone. Now he has to sue softbank to try and get it back but there's just no way it's ever going to happen.
In my experience, courts don’t take pity into account anyway, they work using the contracts that exist two parties, subject to the law of the jurisdiction.
However, he is a very good con artist. I could see him getting away with some more swindling at the courts, because really that's a game all about persuasion, not truth.
Thanks for the insight on Matt Levine's work. Here's [0] an article I found that I found pretty compelling, in case others are seeking a starting point.
Wouldn't blame Neumann for this. He certainly made Western media outlets swoon with his haute couture brand of PT Barnum bullshit, but Softbank held the purse strings and knew what the financials looked like.
I wonder what Japanese public opinion is regarding the central bank potentially bailing out a rich megacorp. Are they also resigned to the 'too big to let fail' philosophy that we in the west consider part and parcel of our brand of capitalism?
This sounds a bit similar to - and just as ludicrous as - American taxpayers financially assisting or “bailing out” massive companies which were/are so bad at cash flow management that their runway was/is only 1-3 months, despite hundreds of millions - if not billions - in annual revenue and a varying chunk of that being profit.
American taxpayers invest their 401k money into american stock market, and they vote with their money for such companies. I'm against bailouts on libertarian principles, but if you're going to do bailouts at all, I don't see any reason why you wouldn't bailout these companies.
(And, every time bailouts are mentioned, I have to notice that it's not free money, it's loans, with interests, and 2008 bailout have actually made money for american taxpayers in the end. May be not as much money as other investments would, but it also had a nice side effect of saving american (and probably world) economy from even worse disaster).
Edit: OK, I was wroung about free money, by bad. But when the 2008 bailour is mentioned, I feel that most people discussing it still think of it as some sort of handout.
That's not exactly true this time. The airlines, for instance, are getting about $35 billion in outright grants, and $15 billion in loans and warrants equal to 10% of the total.
The large part of it is free money, and many major US airlines have been the worst offenders at financial engineering, spending the large part of their free cash flow on stock buybacks, and running the business on razor margins.
The loans are forgiveable if used for salaries and rent and interest on existing debt, as long as you hire back or keep 90% of your staff at 90% of wages.
So any company can say that they used 100% of the money to pay for the approved things for 8 weeks, and that amount of money is forgiven.
Most of the loan is like free money to most companies.
No, the 2008 recession saw Fed Quantitiative easing put in $4.6T in money that was never paid back to outright buy assets off of banks at full value. People only get told about TARP which was a temporary loan, but the vast magnitude of bailout was around the QE buyouts.
MBAs strategically weaken businesses with debt instruments so they aren't "leaving money on the table". We shouldn't be excusing this sort of behavior. Businesses schools need to start teaching their acolytes about planning for a future more than three months away. Everyone wants to look like Apple with a juiced vanity stock price but they won't squirrel away the cash needed to survive a rainy day.
I'm sympathetic to this view. It doesn't seem very efficient to have businesses compete on whether they can predict major disasters. That means some of them will be unprofitable most of the time, and then have a monopoly once their day comes.
OTOH, you also don't want businesses to be/look profitable simply by running on super short runways while high on debt. There are all kinds of non-black-swan things that they need to anticipate riding out if they want to be solid businesses. The culture of running on that model (as the neighboring comments note) needs to die.
A middle ground might be to just require businesses to contribute to a common "rainy day fund" that activates whenever the government has to fight a major disaster, and, as public policy, bans entire businesses.
But then, I don't see a major economic/financial difference between that, and just paying unemployment/bailouts out of general tax revenue. The only difference would be "who bears the burden" -- but it's not much a difference, given that disasters affect the whole economy at once, and most everyone is thus affected.
I'm not advocating a position -- not in this comment, anyway -- just wanted to give an overview of the dynamics.
Obviously they do if they're demanding bailouts. That's three times in the last 20 years that the federal government has had to bail out "too big to fail" businesses... airlines in 2001, banks/automakers in 2008, and everything in 2020.
Like mbrameld said, the only reason they don't have runway is because the government will bail them out.
They absolutely should have runway and understand the risk they are taking when investing in companies with negative margins and hedge their bets early.
If they know the government will bail them out in the end, they can continue to freely burn money at the expense of the Japanese people.
Technically it wouldn't be for Adam Neumann personally. Softbank has pulled back it's tender offer for an additional $3B share re-purchase which would have mostly come from existing shareholders.
This was the deal that would have been the golden parachute for Adam Neumann as well as providing a sizable return for Benchmark.
This is now going to go to litigation, but highly unlikely that it will close as there were certain conditions to the deal closing which haven't been met.
The Saudis are perfectly capable of organic home-grown stupidity.
MBS has an impressive record of investment failures. It's possible he's part of a secret plot to destabilise the entire region and bring the reign of the House of Saud to an end, but it's just as likely he's a privileged playboy fool who has no idea what he's doing.
That Kashogi affair exposed how backward the Kingdom is at executing. Sourcing out to CIA after consulting the U.S. President first could've been an option with perfect 2020 hindsight.
He has an equally impressive record of non-investment failures as well: the war in Yemen, assassinating Khashoggi, etc. And I agree that Occam's Razor argues for the latter.
I wonder if Japanese tax laws are similar to the US in that they incentivize write downs to create net operating losses to offset future profit. For SoftBank, which operates a very profitable core business, losses here could ensure no tax payments for years to come. This happened in 08 with many of the fire sales in the mortgage and banking business.
WeWork is effectively worth nothing at this point.
Their revenue surely has tanked given everything and won’t just magically return to normal. They’re sitting on massive liabilities with all the leases and capital they invested in locations. Yes leases could be renegotiated etc. but given WeWork’s woes that long predate COVID-19 it’s very unclear how they survive much longer beyond perhaps being sold for scrap in some sort of fire sale.
It’s crazy to remember that less than a year ago there was serious movement towards a WeWork IPO.
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[ 3.4 ms ] story [ 135 ms ] threadSo the potential downside is still even larger.
Seeing as WeWork needs to continue to pay their long-term leases, 2020 is not going to look good for them thanks to Covid-19.
"Sycamore ignores a fundamental problem with its apparent case of buyer’s remorse: At the time the parties negotiated the Agreement, the world was already well aware of the existence of COVID-19, and the parties agreed that Sycamore would bear the risk of any adverse impacts stemming from such a pandemic. … Sycamore and its representatives may wish that the world did not have to face the pandemic that now confronts us, and may regret that they did not negotiate the allocation of pandemic risk differently in the Transaction Agreement. But having made that commercial choice, Sycamore must now live by it."
A landlord would not go for a rental contract that places the risk of something like a pandemic solely on their own shoulders. Those landlords more often than not financed the property (development, property costs, construction) with long term loans themselves, so they have to repay that with interest in top of what the taxman wants, payroll, etc.
I wonder if the value will be less than 0 soon with all of the liabilities WeWork has!
[1] https://en.wikiquote.org/wiki/Everett_Dirksen#Misattributed
While I hope the BOJ and the Japanese taxpayer aren't on the hook for Softbank's hubris (not just with WeWork but also Oyo and Uber), I am glad that pension and mutual funds won't have any exposure to this flaming pile of garbage.
The Japanese taxpayer (Yen-holder) having to support the losses of Adam Neumann's personal money tree seems pretty crazy to me.
But it's all psychology 101 really, once you are viewed as "too big to fail", everyone contributes to your gigantic scam like a nervous peasant and they'd rather do it forever than take the hit now and let it burn.
https://www.bbc.co.uk/news/uk-scotland-scotland-business-524...
They got £46 billion from the UK government.
While many were against the 2008-09 bailouts, you could at least see the logic of why the cost of the wake left behind from a company like General Motors radically reorganizing or dissolving would be worse than the cost of bailing them out.
What happens if WeWork dissolves? Softbank and its investors lose a couple billion. They'll survive. WeWork owns some real estate and would leave behind office space that's already built out for short-term leasing.
They'd be leaving behind something that can be mostly done turn-key by the next owner, hopefully on a smaller scale, with less ambitious growth expectations. They wouldn't be leaving behind an entire supply chain that extends well beyond themselves.
Answer is they don’t “need” to.
Adam set that company up for failure and Son funded that stupid vision. Appropriately it was with the SoftBank Vision Fund.
It isn't logic grounded in some empirical truth. Bailouts - who gets them, as well as what would happen if not, are so subjective that there's no fair way to even go about it.
What's worse is to perpetuate a culture, model, industry that doesn't deserve to continue to operate. And by deserve, it's not my opinion, rather logic of the market dictating things.
As if that wasn't even, bailouts reward poor business practices - someone please prove otherwise!
You think Softbank will win the lawsuit? Any idea why?
That being said, anything can happen in court.
[0] https://www.bloomberg.com/opinion/articles/2019-10-23/how-do...
He's not doing it for altruistic reasons. It's sophisticated rent-seeking via image glossing.
I wonder what Japanese public opinion is regarding the central bank potentially bailing out a rich megacorp. Are they also resigned to the 'too big to let fail' philosophy that we in the west consider part and parcel of our brand of capitalism?
(And, every time bailouts are mentioned, I have to notice that it's not free money, it's loans, with interests, and 2008 bailout have actually made money for american taxpayers in the end. May be not as much money as other investments would, but it also had a nice side effect of saving american (and probably world) economy from even worse disaster).
Edit: OK, I was wroung about free money, by bad. But when the 2008 bailour is mentioned, I feel that most people discussing it still think of it as some sort of handout.
The large part of it is free money, and many major US airlines have been the worst offenders at financial engineering, spending the large part of their free cash flow on stock buybacks, and running the business on razor margins.
So any company can say that they used 100% of the money to pay for the approved things for 8 weeks, and that amount of money is forgiven.
Most of the loan is like free money to most companies.
Is this considered odd? These are established companies, not startups. They don't need months or years of runway.
>despite hundreds of millions - if not billions - in annual revenue and a varying chunk of that being profit
I'm not sure why millions/billions in revenue is a relevant metric here. If they operate on razor thin margins, they're going down either way.
Isn't that only because bailouts are available for unforseen hardships that would otherwise require a runway?
OTOH, you also don't want businesses to be/look profitable simply by running on super short runways while high on debt. There are all kinds of non-black-swan things that they need to anticipate riding out if they want to be solid businesses. The culture of running on that model (as the neighboring comments note) needs to die.
A middle ground might be to just require businesses to contribute to a common "rainy day fund" that activates whenever the government has to fight a major disaster, and, as public policy, bans entire businesses.
But then, I don't see a major economic/financial difference between that, and just paying unemployment/bailouts out of general tax revenue. The only difference would be "who bears the burden" -- but it's not much a difference, given that disasters affect the whole economy at once, and most everyone is thus affected.
I'm not advocating a position -- not in this comment, anyway -- just wanted to give an overview of the dynamics.
Obviously they do if they're demanding bailouts. That's three times in the last 20 years that the federal government has had to bail out "too big to fail" businesses... airlines in 2001, banks/automakers in 2008, and everything in 2020.
Like mbrameld said, the only reason they don't have runway is because the government will bail them out.
If they know the government will bail them out in the end, they can continue to freely burn money at the expense of the Japanese people.
https://www.cnbc.com/2020/04/02/softbank-pulls-deal-costing-...
This was the deal that would have been the golden parachute for Adam Neumann as well as providing a sizable return for Benchmark.
This is now going to go to litigation, but highly unlikely that it will close as there were certain conditions to the deal closing which haven't been met.
MBS has an impressive record of investment failures. It's possible he's part of a secret plot to destabilise the entire region and bring the reign of the House of Saud to an end, but it's just as likely he's a privileged playboy fool who has no idea what he's doing.
https://en.m.wikipedia.org/wiki/Hanlon%27s_razor
Their revenue surely has tanked given everything and won’t just magically return to normal. They’re sitting on massive liabilities with all the leases and capital they invested in locations. Yes leases could be renegotiated etc. but given WeWork’s woes that long predate COVID-19 it’s very unclear how they survive much longer beyond perhaps being sold for scrap in some sort of fire sale.
It’s crazy to remember that less than a year ago there was serious movement towards a WeWork IPO.