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WeWork IPO Filing Withdrawn as Roadshow Leads to a Dead End

September 30, 2019, 4:36 PM UTC

WeWork is throwing in the towel and acknowledging what many on the Street have already predicted—WeWork won’t work. At least right now.

The highly-scrutinized co-working company announced Monday that they will be filing to withdraw their S-1 from the Securities and Exchange Commission, thereby postponing their much-embattled IPO plans.

“We have decided to postpone our IPO to focus on our core business, the fundamentals of which remain strong,” WeWork co-CEOs Artie Minson and Sebastian Gunningham said in a statement Monday. “We are as committed as ever to serving our members, enterprise customers, landlord partners, employees and shareholders. We have every intention to operate WeWork as a public company and look forward to revisiting the public equity markets in the future.”

The We Company has come under heavy fire from the Street in recent months, culminating in We’s CEO Adam Neumann stepping down (and appointing two new co-CEOs). And if the company is to survive, major spending cuts are in order—in fact, reports of massive layoffs, cutting down on luxuries (including company jets), and selling businesses are all part of the company’s plan to stem spending, according to Wall Street Journal reports.

The fact that WeWork will now likely be re-writing their prospectus at some point in the future is not surprising to some analysts.

“I tweeted last week after [Neumann] stepped down: ‘time to We-write that IPO prospectus,’ and there will be some very drastic changes ahead of them,” Matthew Kennedy, senior IPO market strategist at Renaissance Capital, a provider of institutional research and IPO ETFs, told Fortune. “They could have filed an amended S-1, but I think they still want liquidity, VC’s still want an exit, but this is going to be a complete reset [and] in addition to the prospectus, I think we’re seeing some drastic changes at the company itself. Massive layoffs, the CEOs are taking the company in a new direction and they want to make that clear, and I’m guessing they are going to do a complete rewrite of the IPO prospectus.”

And for others like Santosh Rao, head of research at Manhattan Venture Partners, We Co. will likely have to start from scratch with their filing. He suggests the way the prospectus is set up currently is “absolutely a no-go.”

WeWork’s $6 billion financing deal

But now that WeWork is pulling the IPO (officially), one big question remains: what happens to that $6 billion financing the company was counting on?

The loan was reportedly contingent on a successful IPO (raising $3 billion)—which is now out of the question for the time being. But analysts like Kennedy don’t think the financial set-back will be too detrimental given the company’s prospective internal overhaul.

“I think that while they will have to adjust their business to not grow as fast and they’ll have to make do without the $6 billion in financing, I think that the lenders and the shareholders still want this company to succeed and they’ll provide them with the resources to do so to an extent,” Kennedy suggests. “They won’t need nearly as much of that $6 billion going forward with the planned operational changes,” he adds.

Indeed, for others like Manhattan Venture Partners’ Rao, the major investors in We (like JP Morgan and SoftBank) are somewhat stuck.

“I’m sure [the financing] can be renegotiated,” Rao told Fortune. “At this point, … I think that the bankers have invested a lot already, so they’re not going to abandon ship at this point, they will stay the course. It may be renegotiated, maybe on different terms, and maybe they have to pay a higher rate … but it’ll get done. It’s in the best interest of the banks.”

Still, it’s clear We can’t keep up their current growth rate if they plan to IPO (or even survive). In fact, according to a recent report from Chris Lane, an analyst at Sanford C. Bernstein & Co., with WeWork’s current rate of cash burn of around $700 million per quarter, the company could run out of money as soon as after the 1st quarter of 2020.

And even the language in We’s statement to postpone (“the fundamentals of [the business] remain strong”) is cause for concern.

To boot, Kennedy suggests We will have to give some “assurance [to executives and employees] that those [stock] options are not worthless” after they were denied a payout at the IPO.

With plenty of operational issues and huge cash burn, it seems safe to say that if and when WeWork issues a new prospectus, they’ll probably cut that part about “elevating the world’s consciousness.” And stick closer to, you know, office space.

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