WeWork's new chairman defends payouts to founder

October 24, 2019 09:31
Following the cash lifeline from Softbank, there is zero risk of WeWork going bankrupt, the startup's new chairman says. Photo: Reuters

WeWork’s new Executive Chairman Marcelo Claure on Wednesday defended huge payouts to the office-sharing company’s founder Adam Neumann and said there is now “zero risk of the company going bankrupt,” Reuters reports, citing an audio recording of a meeting he held with employees.

The meeting took place a day after WeWork’s largest shareholder, SoftBank Group, provided a US$9.5 billion lifeline and took over the company, including payments to Neumann to give up control.

In response to a question from one WeWork employee, Claure said Neumann was like any shareholder of the company who deserved the right to sell his shares.

“There’s a level of gratefulness that we’re going to have for Adam, because he’s the one who built this business,” Claure said.

Neumann has the right to sell his stake in the company for as much as US$970 million, sources previously told Reuters, as part of a tender offer in which SoftBank will buy up to US$3 billion in WeWork shares from investors and employees. He currently owns a little over one fifth of WeWork.

SoftBank has also agreed to extend him a US$500 million loan to repay a credit line from JPMorgan Chase, as well as pay him a US$185 million fee for a four-year assignment as a consultant to WeWork, according to a Reuters source.

WeWork cofounder Miguel McKelvey had kicked off the meeting by introducing Claure to the staff at the company’s New York headquarters and addressed the tumultuous few weeks WeWork had experienced.

“I think I’ve run out of words to describe what’s been going on from surreal to crazy to unbelievable to...bonkers,” McKelvey said.

In August, WeWork filed for a splashy initial public offering. This week, it was struggling for survival as it has been quickly burning through the cash on its balance sheet.

The IPO was abandoned in September as investors balked at sky-high valuations - a deal in January had tagged its worth at Us$47 billion. The rescue by SoftBank now values it at just US$8 billion.

Investors also questioned both whether its business model was sustainable given big losses it was suffering and the way that Neumann was running the company, triggering his resignation as CEO.

Claure, who was previously CEO of US wireless carrier Sprint, set an upbeat tone during the hour-long meeting at which he encouraged questions.

“My goal is to be part of one of the most amazing comebacks in history and to build jointly with you guys,” said Claure, who is also the chief operating officer at SoftBank.

Claure said that the new cash injection meant WeWork was not going to struggle to survive.

However, it was going to focus very differently, he said.

"Make no mistake, the world has changed. The growth stories don’t sell any more,” he said, adding that the challenge is to “build a company that has an amazing product, that delights our customers, but also makes money.”

And that meant deciding which of the markets around the world “makes sense for us to be in, which market doesn’t,” he said.

Claure said he can't say how many layoffs would take place as WeWork looks to “go back to basics.”

Sources close to the company have in recent weeks a range of figures for possible layoffs, from as few as 2,000 to as many as 5,000 out of the firm's 12,500 employees, Reuters said.

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