Buyout of Drowning WeWork China Assignment Sample

• Subject Name : Accounting and Finance

Temasek and Trustbridge Eyes for the Buyout of drowning WeWork China, forcing the valuation to escalate at $ 1 billion and reduce the financial stress on Softbank.

Overview

WeWork is an American commercial real estate company that provides shared workspaces for technology startups and services for other enterprises. During 2017, WeWork aanouncd heavy investment in China with an investment of $ 500 million made majorly by SoftBank and Hony Capital that resulted in a standalone company named WeWork China.

The Challenges

The company is a loss making entity which was revealed in a prospectus (the S-1 filing disclosures) filed for IPO. The IPO was announced after the company has raised millions from the initial investors, $ 500 mil in 2017 (as discussed above) and a same amount during 2018, which values the company at $ 5 billion.

SoftBank has invested large in WeWork and is in the midst to overhaul a successful shared-office startup that eventually became a burden after the IPO got failed and dramatic writedowns in the valuation, Softbank during late 2019, recognized a zero value for $9.2 billion on its investments in WeWork. The problems escalated when We Work’s CEO Adam Neumann resigned during late 2019.

The Chinese wing of WeWork that is backed by Softbank is engaged in a highly competitive market where it contends with various aggressive and well-connected rivals. The closest competitor to We work in China is Ucommune which is Founded by Mao Daqing, a popular figure in the tech and property circles of China. Uncommune is a startup that is racing high to capture large market share in shared-office-space in China.

It has also filed for an IPO in U.S. exchange, but bears various similarities to the prospectus that WeWork published before its own failed IPO attempt like the description of generating profitability. The initial underwriters including Citigroup and Credit Suisse have backed from Ucommune’s IPO and now have little option to move forward. There are huge possibilities that Ucommune will eventually ended with likely results as that of We work.

The Japan based SoftBank Group during October 2019 also announced a bailout package of a whopping $ 9.5 billion in favor of Chinese unit of WeWork, but its negotiation talks with top three banks of Japan stalled during December, 2019.

The Solution

Singapore based investor, Temasek Holdings Pte and Shanghai based private equity firm Trustbridge Partners have decided and make confidential proposals (as per Reuters reports) to purchase a majority stake holding in the Chinese business of WeWork.

A takeover proposal by the pair is basically a Buyout (or LBO) to claim a majority stake holding in a loss making, drowning company has already been submitted to WeWork-backer SoftBank Group Corp during 2019 ending. The proposed takeover will possibly value the China’s business of the company at approx. $ 1 billion.

If the majority stakeholders of We Work, China including WeWork (parent) and SoftBank decided to accept the takeover proposal by Trustbridge and Temasek, then it is going to extremely help in reducing the large financial burden that the two companies are holding. After the announcement goes public in the midst of January, 2020, the market price of the shares of SoftBank jumps by 0.21 per cent with an immediate effect.

Also We Work China is optimistic about the future and has set ambitious revenue goals. However, the targets will be highly challenging to achieve with staff cutbacks and poor occupancy levels at its majority of the properties across China.

Also, various analysts are of the view that the Chinese unit of WeWork still has lots of potential and can have a bright future considering Softbank overtake the business plan and the focuses on the evolution of company’s corporate office market. Also, WeWork can recover from losses and achieve profitability if it limits the expansion to extraneous areas and focus more on filling up its existing space.

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