Earlier this week in last-ditch attempt to salvage its original investment, the Japanese conglomerate SoftBank injected $10 billion dollars into WeWork. In exchange for the lifeline that currently values WeWork at $8 billion - less than the sum of Softbank’s total investment ($13 billion) - Softbank will get a controlling stake in the cash strapped startup. Before Softbank leader Masayoshi Son agreed to write a multibillion-dollar check, WeWork was approximately one month away from running out of cash.
Exasperatingly, under the terms of the deal, WeWork’s outlandish co-founder and former CEO Adam Neumann was effectively paid $1.7 billion to go away. Specifically, “Neumann is expected to sell nearly $1 billion worth of stock to SoftBank and receive $500 million in credit as well as a $185 million 'consulting fee'."
Under any circumstance, the size of this overly generous golden parachute would be heavily scrutinized. However, given Mr. Neumann’s history of arrogant, self-centered and tone-deaf behavior, brazen self-dealing and WeWork’s disastrous business performance metrics, it is downright disgraceful.
We (Did Not) Work
In early 2019, WeWork (officially known as “The We Company”) was preparing an initial public offering. Major Wall Street banks including Goldman Sachs and JP Morgan were busy pitching the deal to institutional investors. The bankers were apparently punch drunk from Mr. Neumann’s Kool-Aid spiked tales of what WeWork had to offer, which among other nonsensical things, included a “frictionless office-leasing experience.” In their pitch, bankers argued that WeWork was more akin to an upstart tech company. Somehow, they pegged WeWork’s valuation at $47 billion, despite that it had neither a unique nor remarkable business model, was a user of technology not a creator of it, and managed to hemorrhage investor cash since its inception, including ~$2 billion in the previous year alone.
Thankfully, markets tend to be effective at sniffing out odoriferous behavior. Soon after WeWork was pitched to the public, would be buyers of the shares began to question the firm’s nose bleed valuation and Mr. Neumann’s abhorrent judgement. Demand quickly dried up. On September 30th, WeWork scrapped its IPO.
Our Mission Is To Elevate The Worlds’ Consciousness.
Um, what? One of the more absurd claims made by Mr. Neumann was that his company’s mission was to “elevate the world’s consciousness.” At TQC, we have no idea what this even means. However, it appears that during his tenure at WeWork, Mr. Neumann seemingly lacked a conscience of his own. These are but a few examples of the fantastical claims and tone-deaf behavior that wreak of self-dealing, gross hypocrisy and blatant conflicts of interest which Mr. Neumann engaged in as CEO and whose cost was borne by WeWork’s investors:
• Sold hundreds of millions of dollars of WeWork stock ahead of its botched IPO when the firm was valued at $47 billion. (Those employees that were even authorized to unload shares had to do so at a lower price).
• Purchased a private plane for $60 million and used it for personal vacations.
• Authorized WeWork to purchase the “We” trademark from himself for almost $6 million dollars.
• Purchased real estate with funds partly derived from selling WeWork stock and subsequently leased the space back to WeWork.
• Allowed his wife, Rebekah, to terminate employees because she “did not like their energy.”
• Fired employees himself (perhaps his wife did not “like their energy”?) and moments later watched Run DMC perform their classic hit song “It’s Tricky.”
• Banned employees from expensing meat and serving it at company events then ate a lamb shank in the office.
• Hired the Red Hot Chili Peppers to perform at a company off-site event.
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