By Maureen Farrell and Eliot Brown
In early October, WeWork's board of directors trickled into a
brick building in lower Manhattan where the startup had an office.
After they took their seats around the conference room table, Mark
Schwartz started to vent.
"I've stayed silent too long," the 65-year-old former Goldman
Sachs Group Inc. partner told the six other men on the board,
including WeWork's co-founder and chairman, Adam Neumann.
Mr. Schwartz aired his frustrations about the state of the
company, which was perilously low on cash after years of
freewheeling spending and had become the butt of jokes on Wall
Street, according to people familiar with the meeting.
No more fantasies, he said, as advisers and others looked on.
Now, he said, they needed to make decisions that would save the
company.
Even more remarkable than the content of Mr. Schwartz's
blistering rebuke was the fact that it came so late. The banker had
stayed silent so long that the story was almost over.
We Co., as the parent company is officially known, was already a
distressed asset by then, undone by conflicts and the dawning
realization that it was just a hip real-estate sublessor -- not a
tech company. A few weeks earlier, WeWork had shelved its
disastrous attempt at an initial public offering and Mr. Neumann
had subsequently stepped down as chief executive .
It was a spectacular fall for the company that months before had
been America's most valuable startup.
Little of WeWork's trajectory would have been possible were it
not for the collection of veteran executives and financiers from
the upper echelons of Wall Street and Silicon Valley who enabled
Mr. Neumann, a charismatic 40-year-old with little prior business
experience.
Mr. Neumann mesmerized them with his pitch, which offered a
vision for the property-leasing company as a tech startup with
limitless potential to transform how people work and live.
Investors poured capital onto Mr. Neumann's business bonfire and
ceded control, rarely pushing back with any force despite mounting
problems and year after year of missed projections.
Masayoshi Son, the CEO of SoftBank Group Corp., who helped
inflate WeWork's valuation to $47 billion, pushed an already
wild-spending Mr. Neumann to act bigger and crazier. JPMorgan Chase
& Co. CEO James Dimon and other bankers, instead of injecting a
dose of reality, spent years championing Mr. Neumann and the
company as they battled for the coveted IPO assignment.
The outside board directors, all of whom had decades of
experience in business and finance, voted for years to approve
decisions by Mr. Neumann that paved the way for WeWork's near
collapse. Some of them had potential conflicts of interest
themselves.
The directors on the board let Mr. Neumann personally buy stakes
in buildings that he would lease to WeWork. They gave him long-term
voting control of the company in 2014, and allowed him to sell and
borrow more than $1 billion against his WeWork stake. They approved
hundreds of millions of dollars for acquisitions of tech companies
that were viewed by top executives as wasteful spending, with
little relation to WeWork's core business.
The end result didn't just blow up $39 billion of the company's
value, roughly the value of Delta Air Lines Inc. It was a watershed
moment for Silicon Valley. For years, investors salivated over
all-powerful founders who promised disruption and demanded control.
After WeWork's spectacular flameout, investors have grown skeptical
of the model.
In the moment, there was little debate following Mr. Schwartz's
remarks in the Oct. 3 meeting. The company needed funds to avoid
running out of money by the second week of November.
Mr. Neumann, who had repeatedly skipped board meetings,
including as the company was planning the IPO, urged the board to
move quickly. They needed to save the company and that was all that
mattered, he said.
The beginning
WeWork was born in the wake of the global financial crisis. In
2009, Mr. Neumann and Miguel McKelvey, a trained architect, had
success with a small property-leasing business in Brooklyn. The
next year they opened their first office in Manhattan.
The New York economy was reheating and young entrepreneurs
flocked into its tiny SoHo location. It proved an ideal time to be
hunting for startup financing, with housing and banks hobbled by
the recession and interest rates low.
Mr. Neumann excelled at the fundraising game. He laid out a
vision for a set of "We"-branded businesses, such as office
renting, housing, banking and business services, that could make
money off young entrepreneurs in a changing workforce.
Within a couple of years, Mr. Neumann had piqued the interest of
Michael Eisenberg, then an Israel-based partner at the vaunted
venture-capital firm Benchmark Capital. Mr. Neumann flew to
Benchmark's Silicon Valley office to pitch its partners. The
conclusion: Many were skeptical of the business, but they loved Mr.
Neumann, and figured he had the charisma and instincts to build a
huge company. Benchmark led WeWork's first, Series A round of
venture funding, which totaled $17.5 million.
WeWork's business model was to lease long-term and charge higher
rates to short-term small-business clients. That meant revenue
relatively quickly exceeded the costs of operating its spaces. This
is relatively common in real estate, but it looked extraordinary
compared with software and hardware companies, which typically
require years of investment.
DAG Ventures, another Silicon Valley venture-capital shop,
invested in WeWork at a $440 million valuation. Then came
JPMorgan's asset-management arm, at $1.5 billion. T. Rowe Price
Group Inc. jumped in at a $5 billion valuation in late 2014. Six
months later, Fidelity Investments followed at $10 billion.
The rush of money gave startup CEOs extraordinary leverage. For
decades, investors were used to being able to fire founders and
steer the direction of their companies. Now investors competed to
show how they were "founder friendly." Founders were lionized for
having giant vision, inspiration and a little bit of crazy.
Mr. Neumann had all these traits, and his eccentricities only
seemed to entrance investors even more.
In late 2015, WeWork was completing an investment round led by
Beijing-based Hony Capital Ltd. that pushed its valuation to $16
billion. Mr. Neumann invited its CEO, John Zhao, to a party at 110
Wall Street, where WeWork was about to open its first WeLive
dormlike apartment building.
Toward the end of the night, Mr. Neumann led others to the roof
of the 27-story building. There, guests passed around tequila
shots. Mr. Neumann picked up a fire extinguisher and set it off,
spraying Mr. Zhao and others with white foam.
The deal went through. Mr. Zhao joined WeWork's board in July
2016.
Mr. Neumann continuously said profitability was just around the
corner. In reality, its losses were swelling far larger every
year.
A presentation for prospective investors in fall 2014 projected
the company would turn a $4.2 million operating profit for the
year. When the year was through, just three months later, the
company reported an operating loss of $88 million on $74 million of
revenue, according to internal documents.
Mr. Neumann told the Journal in 2015 that WeWork was profitable
and it didn't need additional funding before an IPO. It reported a
$233 million loss for the year on $187 million in revenue.
In fact, WeWork has had only one profitable year in its history:
2012, when it generated about $1.7 million in net income, internal
documents show.
Keeping control
As investors poured in more money, Mr. Neumann's grip on WeWork
tightened.
To maintain control, as part of the round in which T. Rowe Price
invested in the company, Mr. Neumann restructured WeWork's stock so
that each of his shares had 10 times the votes of a normal one.
As part of the same deal, an entity Mr. Neumann controlled sold
$40 million of stock. He did it twice again in 2015, selling an
additional $80 million. It was a tiny portion of his stake -- he
was worth around $3 billion on paper -- but Silicon Valley
investors normally hated such sales. Startup founders were supposed
to stay aligned with investors until everyone could sell, usually
in an IPO or sale.
Some directors urged more restraint. Bruce Dunlevie, Benchmark's
representative on the board, resisted the voting control change,
telling Mr. Neumann and other members of the board that absolute
power corrupts absolutely.
Mr. Neumann prevailed, winning over the full board on both the
voting control and the stock sales.
Benchmark partner Bill Gurley is known for criticizing venture
firms that give too much power to founders. Several of its
companies -- including Snap Inc. and Uber Technologies Inc., where
Benchmark held board seats -- have been criticized on the same
issues. In 2017, Mr. Gurley helped push out Travis Kalanick, Uber's
co-founder and CEO, amid scandals and concerns about corporate
culture.
Mr. Gurley and most of the other Benchmark partners increasingly
viewed Mr. Neumann as similar to Mr. Kalanick -- a rogue CEO who
needed to be reined in, according to people who have discussed the
matter with the firm.
In 2017, five partners from Benchmark flew in from the Bay Area
to Manhattan to meet Mr. Neumann. They raised concerns about issues
including missed projections and Mr. Neumann's stock sales, a
person familiar with the meeting said.
Among Benchmark's partners, Mr. Dunlevie tended to be
deferential to Mr. Neumann, causing tensions within the firm,
people familiar with the dynamics said. He criticized some of Mr.
Neumann's actions, but also frequently extolled the CEO's vision,
comparing him to Amazon.com Inc. Chief Executive Jeff Bezos.
Some directors saw their roles as more akin to advisers, rather
than watchdogs or guardians for other shareholders, given that Mr.
Neumann effectively controlled the board, according to people who
have spoken with them. Mr. Neumann's potent voting stock gave him
the right to replace them or pack the board to outvote dissenters.
Voting against Mr. Neumann would make it harder to register
criticism in the future, some reasoned.
Multiple directors also shared some of the potential conflicts
for which Mr. Neumann was later criticized.
He had always been open about hiring friends and family.
WeWork's executive ranks included his wife, Rebekah Neumann, the
company's chief brand officer. Mr. Neumann once told staff the
board strongly resisted hiring Ms. Neumann, but he persevered,
telling directors they could have both Neumanns at WeWork, or
neither.
At an executive retreat in Montauk on Long Island, Mr. Neumann
once raised a glass in a toast "to nepotism," attendees said.
Among board members, Mr. Zhao's son got a job at WeWork, as did
the daughter of Mr. Dunlevie, who wasn't involved in her hiring,
people familiar with the matter said.
Lew Frankfort, former CEO of Coach Inc., borrowed from WeWork to
buy stock and exercise some stock options early -- a move typically
made to save on taxes.
Another director, Steven Langman, had a deal with WeWork that
could prove highly lucrative. His private-equity firm, Rhone Group,
became a co-manager of WeWork's real-estate fund business, which
bought properties to lease to the company. Rhone was entitled to
management fees and a percentage of profits on properties
purchased.
Earlier this year, WeWork expanded its involvement in the
real-estate fund business, diminishing the influence of Rhone --
which initially had a 50% stake. In April 2019, WeWork gave 454,546
restricted shares to Mr. Langman "for his ongoing services to The
We Company," according to the prospectus. The award, granted over
multiple years, would have been worth around $50 million at
WeWork's share price from the time. The share value has fallen by
more than 80% since.
Ramping up
Into this freewheeling situation came SoftBank's Mr. Son. From
WeWork's early days, speed was central to its narrative: Its goal
was to build out more properties more quickly than any company
ever. Mr. Neumann, who often spent meetings pacing the floor, was
known for his frenetic energy.
Speed is an essential ingredient in Mr. Son's narrative, too.
He's often said he decided to invest in Jack Ma, co-founder of
Alibaba Group Holding Inc., within minutes of meeting him because
of "the sparkles in his eyes." (Mr. Ma and his wife, Cathy Ma,
invested roughly $25 million in WeWork in 2016 as part of the round
led by Hony, said people familiar with the investment.)
Mr. Son's gut-based investment style became a hallmark of the
$100 billion Vision Fund. The fund showered money on unprofitable
startups, pushing up valuations many considered already
overinflated. He allowed executives in his portfolio companies to
cash out huge sums far before investors generated any returns.
Mr. Neumann said in an interview on CNBC this year that it took
Mr. Son 28 minutes to make his initial decision in late 2016 to
invest $4.4 billion in WeWork, time that included getting in and
out of the car and touring the company's headquarters.
Executives at SoftBank had looked at WeWork before -- and
passed.
After the 2016 initial agreement between Messrs. Son and
Neumann, many on SoftBank's team panned the deal, upset they were
committing so heavily to a real-estate company. Ultimately, Mr. Son
made the decisions about whether or not to invest.
In March 2017, for the first time after their handshake
agreement, Mr. Neumann and a contingent of WeWork executives and
advisers flew to Tokyo to meet Mr. Son and his team.
In a late-night meeting days before the trip, Mr. Neumann
insisted they arrive with a gift for Mr. Son, and deemed that a
giant artwork hanging in his own office, a collage made of
electronics and other objects that spelled out WeWork, would be
appropriate. It was too large to fly with the group on a private
jet, so his team dispatched their logistics courier to ship it. The
carrier put it in a crate on a commercial jet, at a cost of roughly
$50,000. WeWork executives saw it hung up in SoftBank's office in a
subsequent visit.
Grow faster
The board's newest directors, Ron Fisher and Mr. Schwartz,
joined in 2017, representing SoftBank. Before the SoftBank deal,
WeWork's revenue was roughly doubling annually, an astonishing pace
for a company then seven years old. Some executives hoped it would
slow, so WeWork could start to focus on losses and logistical
problems.
Mr. Neumann made clear to staff that the company's new backer
wanted WeWork to grow faster, not slower. He frequently cited what
he said was Mr. Son's advice: Don't worry about profitability and
grab as much market share as possible as quickly as possible. He
told friends and colleagues he knew he was crazy, but Mr. Son told
him to be crazier.
At one meeting, Mr. Son told Mr. Neumann he shouldn't be proud
of WeWork's lean sales staff, and that it should aim to have 10,000
salespeople, a giant number for a company that had fewer than
10,000 total employees at the time. Mr. Neumann told his deputies
to expand the sales staff more quickly.
Money poured into expansion in China and other Asian countries,
highly competitive markets where losses were large.
Mr. Neumann helmed an array of new initiatives and acquisitions
that had little or no connection to WeWork's core business.
Purchases included event-planning site Meetup.com, search engine
optimization company Conductor, and the Flatiron Academy coding
school.
WeWork also opened an elementary school in Manhattan in 2018
called WeGrow. Mr. Neumann told staff the project came about after
he and his wife were unable to find adequate schooling choices for
their five children.
Directors frequently raised concerns about the proposed
acquisitions, questioning Mr. Neumann on why the company was
expanding into the disparate areas. Nevertheless, WeWork spent more
than $500 million in two years on tech-related companies, with
board approval.
Mr. Neumann considered other deals, including an acquisition of
Cushman & Wakefield PLC, one of the country's largest
commercial real-estate services firms, which currently has a market
capitalization of around $4.2 billion. He made an offer to buy
salad chain Sweetgreen Inc., recently valued at $1.6 billion. And
WeWork came close to paying over $1 billion for facilities
management company BGIS before backing out late in the process.
WeWork's own facilities became increasingly opulent. The sixth
floor of its low-slung headquarters was redone, with a large
section just for executives, including an exercise room. Mr.
Neumann's office included a sauna and an ice bath.
Mr. Neumann wanted a big presence in San Francisco as well. It
leased offices with sweeping views in the new Salesforce Tower.
WeWork ordered giant openings to be cut in the floor to make way
for airy staircases -- an expensive maneuver. A fitness club was
added, with an ice bath. The total costs exceeded $550 a square
foot, roughly three times what WeWork normally spends on renovating
an office.
Then there was the jet.
WeWork had been renting jets for Mr. Neumann from when WeWork
was valued at just $5 billion, but he wanted an upgrade. The
Gulfstream G650ER was top of the line, with 16 plush seats,
high-speed internet and two lavatories, including one just for the
crew.
Multiple investors, including some directors, questioned the
necessity of it, but Mr. Neumann was insistent. The company made
the $63 million purchase, and the jet was delivered in summer
2018.
The business itself was straining to keep up its punishing
growth rate as it grew larger. WeWork executives worried that in
places such as Manhattan, where the company was already the largest
private tenant, doubling WeWork every year could drive up the
entire market for office rentals.
Facing tough deadlines to open multiple new buildings a week,
staffers often shipped couches by air to arrive on time, which
sometimes cost more than the couches themselves.
Employees were whipsawed by frequent design changes to make new
offices more avant-garde. That meant rows of furniture just months
old could go to waste. WeWork occasionally held sales at its New
Jersey warehouse to clear out the older models, allowing employees
to buy $1,000-plus midcentury-modern-style couches from brands such
as Vitra for $100 or less.
When WeWork opened its first buildings in South Korea, it
shipped thousands of mugs manufactured in China that failed to meet
South Korea's strict import laws. While those mugs sat in customs
warehouses, WeWork bought thousands of mugs at higher prices in
time for opening day.
Some investors were increasingly concerned with the business and
its management, as well as stock sales by Mr. Neumann.
"We saw the valuation rise and the corporate governance erode,"
said Eric Veiel, co-head of global equity at T. Rowe Price. Amid
concerns over issues like Mr. Neumann's purchases of property he
leased to WeWork, the mutual-fund manager made clear to Mr.
Neumann, WeWork management and the board it had grown sour on the
company, he said.
"We sold as much as we possibly could," he said, referring to
two deals in 2017 and 2019, when SoftBank bought stock from
existing investors.
More capital
By 2018, it was clear WeWork would need billions of dollars more
to keep growing.
Though he was chairman, Mr. Neumann missed numerous board
meetings throughout 2018, sending deputies instead. In at least one
meeting, directors discussed the pace of growth.
Several directors told others they took comfort knowing WeWork
would soon need to go public because of its need for more cash to
keep growing. The public markets, they told each other, would help
serve as a check on Mr. Neumann.
In board meetings, directors including Messrs. Schwartz,
Dunlevie and Langman pushed Mr. Neumann to commit to a timetable
for an IPO.
Messrs. Neumann and Son had other plans. In mid-2018, they
started talking about a giant deal in which SoftBank would buy a
majority stake in WeWork for roughly $20 billion, including buying
out existing investors.
It wasn't to be. SoftBank's stock plunged amid a broader fall in
technology stocks and concerns over the potential acquisition,
while key SoftBank investors, including Saudi Arabia's Public
Investment Fund, opposed it. On Christmas Eve, Mr. Son told Mr.
Neumann the deal wouldn't work.
Mr. Neumann took WeWork's jet to Hawaii and met Mr. Son in an
attempt to come up with an alternative. Over breakfast, Mr. Son
agreed to invest $2 billion, bringing the size of WeWork's latest
round of financing to $6 billion, and SoftBank's total to $10
billion. The two men agreed the company's valuation would be $47
billion, although people close to the deal never saw a clear
explanation of how that number was determined, according to people
familiar with the matter. The deal called for $1 billion to go to
buying shares from existing investors, allowing some on the board
to sell.
Mr. Neumann said in a January interview on CNBC that the funding
from SoftBank was "above and beyond what we need to fund the
company for the next four to five years."
The company would nearly run out of cash in November. WeWork
ended up on a path to burn more than $3 billion for 2019.
Mr. Neumann told the Journal earlier this year that watching
Mr. Son do his math was "beautiful to see."
Going public
In need of more funding, WeWork began to turn to an IPO, even
though Mr. Neumann felt more comfortable in the private
markets.
Bankers up and down Wall Street had been wooing him for years
with the hope of an eventual IPO, where they would win millions of
dollars in fees and the prestige of bringing a giant company to the
public markets.
Closest to the company had always been JPMorgan and Goldman
Sachs, both WeWork investors. Mr. Neumann referred to JPMorgan's
Mr. Dimon as his personal banker.
It was almost literal: JPMorgan led a $500 million credit line
to Mr. Neumann and lent another $97 million in other forms of debt,
largely mortgages with low rates on his many homes. Mr. Dimon once
ordered his bank to mimic some of WeWork's office designs after a
tour of a WeWork with Mr. Neumann.
In theory, investment bankers can provide prospective IPO
companies practical expertise on the rigors of life as a public
company owned by pension funds and individual investors.
In practice, the bankers supercharged WeWork's visions of
grandeur. They pitched an extraordinarily optimistic picture,
giving Mr. Neumann and other executives more confidence in WeWork's
growth-heavy, loss-heavy strategy. JPMorgan told WeWork it thought
the company would be worth as much as $60 billion, which was lower
than estimates from other banks. Mr. Neumann said that wasn't
aggressive enough, a person familiar with the matter said.
Bankers at Goldman Sachs referenced Mother Teresa and Bob Marley
in its pitch presentation. One slide enumerated, "Your path to $1
trillion," referring to a target of $1 trillion market
capitalization within a decade or so.
Comparable companies, Goldman said, were Salesforce.com Inc.,
Amazon, Alibaba, Facebook Inc. and Alphabet Inc. The difference
between WeWork and this cohort of companies, Goldman Sachs' pitch
deck said, was: "You are scaling faster."
One slide said only, "Growth is paramount."
Mr. Neumann and other executives began using the projections to
justify WeWork's $47 billion valuation to some employees and
outsiders.
There were warning signs that public-market investors would be
wary. WeWork executives and its bankers were aware that T. Rowe
Price, a significant IPO investor, wouldn't be investing in the
offering. The fund's co-head of global equity, Mr. Veiel, said they
knew for years they wouldn't invest, saying there was "mutual
disinterest."
As IPO preparations heated up, Mr. Neumann became distracted by
surfing, a passion of his that became increasingly blended into the
fabric of the company.
After spending part of the winter living in his house in Marin
Country, Calif., in early 2019, he moved back to New York, and
relocated his Hawaii-based surf instructor and his family there,
too. Mr. Neumann paid for their apartment in Manhattan, and some of
the instructor's children attended WeGrow, people familiar with the
arrangement said.
Throughout the year, Mr. Neumann made surf trips to the
Dominican Republic and the Maldives. During a week in early June,
WeWork's company plane made two trips between Costa Rica and New
York.
Meanwhile, Mr. Neumann kept up surfing from the Hamptons and
Montauk over the summer. Executives from WeWork and bankers and
advisers including lawyers from Skadden, Arps, Slate, Meagher &
Flom LLP worked with Mr. Neumann and his wife on IPO-related
documents and presentations at their homes there.
Mr. Neumann oversaw a complex legal restructuring of the company
that gave him and a cadre of other executives stock compensation
with more favorable tax treatment than other employees at the
company -- a move approved by the board.
The mood changed drastically in mid-August.
After WeWork made its IPO paperwork public, potential investors,
analysts and the media panned WeWork for its growing losses and
lack of a path to profitability, and for Mr. Neumann's string of
conflicts. The language used to describe the company was widely
derided. The prospectus was dedicated to the "energy of we," and
the company's mission statement was to "elevate the world's
consciousness."
The reaction sent WeWork's expected valuation plummeting and
prompted Mr. Neumann's financial enablers to speak up more
forcefully.
Mr. Neumann's investment bankers from JPMorgan Chase and Goldman
Sachs had been bracing for a rough response. While they were
bullish in pitches months earlier, weeks before the IPO filing was
made public, they warned Mr. Neumann that his unusual ties to the
company and other governance decisions could cut the company's
stock price.
By the end of August, weeks before the IPO was planned to
launch, WeWork's valuation was expected to be less than half the
$47 billion mark from January.
At Mr. Son's behest, Mr. Neumann took the company jet to Tokyo,
where Mr. Son argued to delay the offering, saying WeWork clearly
wasn't ready. Mr. Neumann rebuffed Mr. Son, saying he would push
ahead.
As Mr. Neumann prepared to leave, Mr. Son offered some parting
advice, according to people familiar with the conversation: This is
going to be bad for you and bad for the company.
Investor search
In the days that followed, Mr. Neumann scoured the globe for
others to commit to the IPO.
On Sept. 3 in London, he met Yasir al-Rumayyan, the head of
Saudi Arabia's sovereign-wealth fund, a big investor in SoftBank's
Vision Fund, according to people familiar with the meeting. Mr.
al-Rumayyan didn't invest.
Facing criticism that WeWork had no female directors, Mr.
Neumann announced he would add Frances Frei, a professor of
technology and operations at Harvard Business School, to its
board.
Ms. Frei had been employed as a consultant to help improve
management, including encouraging gender equality in hiring and
setting up internal training programs, and her firm was given a
three-year contract valued at roughly $5 million, including stock
options. Some executives were frustrated by her use of private
aircrafts to travel from Boston to WeWork's headquarters in
Manhattan at WeWork's expense.
The board, though, was annoyed Mr. Neumann hadn't told them
about the addition until after it was done. Directors vented to
each other at a board meeting that followed -- one in which Mr.
Neumann was again absent. Soon after, Mr. Langman confronted Mr.
Neumann, telling him his disengagement with the board was
unacceptable.
Mr. Neumann showed up at the next meeting days later, apologized
and pledged to attend.
In another meeting in WeWork's headquarters, bankers from
JPMorgan and Goldman, his main lawyer from Skadden Arps and several
senior executives discussed more changes. Mr. Neumann initially
said he didn't want to do anything further. Two of JPMorgan's
bankers on the deal, Michael Millman and Noah Wintroub, told Mr.
Neumann that the company had no chance of going public without
changes.
Mr. Neumann eventually relented. The group spent hours,
stretching long into the evening, getting Mr. Neumann to agree to
everything.
The changes included a promise to appoint a lead independent
director by the end of the year, halving his voting rights to 10
votes per share from 20, and eliminating a provision in which his
wife, Rebekah Neumann -- also a WeWork co-founder -- would play a
role in choosing Mr. Neumann's successor.
That night, Mr. Neumann's co-founder, Mr. McKelvey, called
Nasdaq executives to tell them WeWork planned to list on their
exchange when they debuted roughly two weeks later.
As bankers surveyed investors, it was clear the offering still
might not have enough demand for the more than $3 billion WeWork
wanted to raise -- which was also necessary to gain access to
another $6 billion in debt.
WeWork executives and some advisers worried about another
development: a coming Journal story that they feared would detail
Mr. Neumann's erratic management style and behavior including
marijuana use.
On several occasions after the prospectus was filed, Mr.
Wintroub, one of the JPMorgan bankers, told Mr. Neumann that he
needed to stop using marijuana and take the IPO process
seriously.
Postponed
On the afternoon of Sunday, Sept. 15, bankers from JPMorgan and
Goldman Sachs gathered at WeWork's headquarters to discuss setting
a potential price range for shares in the IPO, ahead of the kickoff
of a two-week sales pitch to potential investors the following day.
Mr. Neumann was expected to sit down with the bankers but never
did.
Instead, he spent the day in another part of his company's
headquarters filming his portion of a video that would be used at
all the pre-IPO investor meetings. Mr. Neumann had canceled
numerous previous film shoots. The process didn't wrap up until
nearly midnight and was mixed with tequila and vodka shots, largely
drank by WeWork executives, as the night wore on.
By late Monday afternoon, at the urging of JPMorgan and Goldman
Sachs' bankers in a meeting at JPMorgan's headquarters, Mr. Neumann
agreed to postpone the IPO.
During a series of meetings that day with Mr. Dimon in
attendance, bankers said investors were particularly concerned
about Mr. Neumann and suggested he consider stepping down. Mary
Erdoes, the bank's asset-management chief, said many investors
thought an IPO was untenable if he remained at the helm. Mr. Dimon
and Goldman's key banker, David Ludwig, pushed him to commit to
other governance changes, including getting rid of his voting
control.
Mr. Neumann was noncommittal. But the stage was set for his
ouster.
On Wednesday, the Journal story was published, sparking chatter
at a three-day meeting in Pasadena, Calif., run by SoftBank.
Investors and executives at companies backed by SoftBank urged Mr.
Son to move against Mr. Neumann.
Over the weekend, he did. His two board members, as well as
others, pushed for Mr. Neumann's ouster. Mr. Dimon added to the
pressure on Sunday, advising Mr. Neumann the offering couldn't go
ahead if he stayed on as CEO. At a dinner that night, Messrs.
Eisenberg, Dunlevie and Langman urged him to step down.
By the end of the weekend, it was clear to members of the board
that Mr. Neumann would relinquish his role. If he didn't give up
his post, the company would run out of money and his stake could be
worthless. When the board met without Mr. Neumann Monday morning,
they largely spoke about who would lead the company.
He gave up control to two lieutenants, Artie Minson and
Sebastian Gunningham, and board members began descending on the
company to help lead its operations. The company hired prominent
banker Peter Weinberg as an adviser to help the board sort through
options.
SoftBank executives put together a rescue package with $5
billion in new financing that would value WeWork around $8 billion.
Nearly $40 billion of valuation had vanished.
Mr. Neumann was still chairman and, given his voting shares,
still had effective control of the company. To entice him to step
aside, SoftBank offered a $185 million consulting fee and boosted
the price it was offering to buy out existing shareholders to
$19.19, from $17.
Mr. Neumann remains a board observer. As part of his consulting
fee, he promised not to start a competitor for four years.
One final inducement involved a large bill for personal travel
on the jet. After a tally of surf vacations and other jaunts, plus
some additional personal expenses, Mr. Neumann owed WeWork $1.75
million at the time of his ouster, according to shareholder
documents.
As part of the deal, which was approved by the board, WeWork
forgave the debt.
--Phred Dvorak contributed to this article.Photo Illustration at
top by David Vogin; Photos: Bloomberg News, Reuters (3), Getty
Images
Write to Maureen Farrell at maureen.farrell@wsj.com and Eliot
Brown at eliot.brown@wsj.com
(END) Dow Jones Newswires
December 14, 2019 00:14 ET (05:14 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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