Office sub-lease company WeWork, ditched its much-hyped plans for a new stock offering recently, permanently shelving its plans for an IPO. Shortly after filing its Registration Statement with the SEC, it became increasingly clear that company co-founder and CEO, Randy Neumann, was a slick huckster and self promoter, whose self-dealing and glaring conflicts of interest with the company, even the most gullible investors couldn’t ignore.
With each passing day after the S-1 was filed, the terms of the offering and the corporate structure were dramatically changed: the valuation was more than halved; Neumann was forced to step down as CEO and all of his insider self-dealings with the company were reversed with alacrity. But alas, the company’s investment bankers couldn’t rid the stench with which the offering had become associated and mercifully, for those foolish enough to have subscribed, threw in the towel.
The chart above depicts the proposed organizational structure for the hydra-headed corporation. The attorneys’ fees it took to create such a labyrinthine organization must have been as astronomical as its proposed $47 billion valuation. When interested investors began perusing the mandatory disclosure documents, the valuation for the company started its downwards trajectory, ending up with an ignominious $19 billion to $20 billion range — a far cry from its ludicrous last private round of funding $47 billion valuation.
Investors who were salivating at getting in on the new offering look like fools now. But, they are in good company. Jamie Dimon, Chairman of JP Morgan, has his bank on the hook for a lot of money in this glorified real estate company.
This planned IPO lends credence to P.T. Barnum’s famous maxim: “A sucker is born every minute.” Far too many investors have been hoodwinked into believing that any company that comes along and calls itself a “tech” company under the guise fo allegedly disrupting an entire industry’s worthy of valuations so unhitched to reality, that new accounting artifices must be devised to justify paying enormous sums for companies that have been bleeding money long before they planned to go public.
WeWork fit this description and those with their heads screwed on straight saw the offering as the scam that it was. Others, whom financial publications constantly refer to as “tech hungry” investors, were lining up to get in on the action. I’ve said previously with regards to paying a premium for start-up companies that have no earnings, idiotic investors who are so “tech hungry,” should get something to eat and then go on a diet.
The bottom line?
WeWork was nothing more than a glorified sub-leasing real estate company, with established competition (Regus) and had no business being called a “tech” stock.