WeWork executives have begun the daunting task of rebuilding the company, starting with 2,400 layoffs and possibly renegotiating founder and former CEO Adam Neumann’s $1.7 billion payoff.
WeWork, which was temporarily renamed The We Company, said it will lay off approximately 20 percent of its workforce to “create a more efficient organization.” The job cuts already affected employees around the world and continued in the United States this week.
Executive Chairman Marcelo Claure said in an email to employees that jobs would be cut in areas that “do not directly support our core business goals.” This suggests the company will be refocusing on the office-leasing operations that attracted billions of dollars in funding and made a mega-IPO possible.
WeWork enjoyed explosive growth and huge funding rounds, but was way off ever achieving profitability. The company established its office spaces in 122 cities around the world, and became something of a startup darling, as its value shot up to $47 billion. Much of this was credited to Neumann, but few were paying attention to some of the antics the eccentric founder was up to.
As the company geared up for its IPO this year, much of this was brought to the attention of the world. Neumann’s sins included buying property and renting it to his own company, and starting bizarre side businesses such as a Manhattan elementary school and a shared residential offering.
But worse than that, investors were given a detailed look at the company’s financials. The company’s third quarter results for 2019 were particularly worrying, showing a record $1.25 billion in losses. Unsurprisingly given the state of the company, the IPO was canceled and Adam Neumann forced out of the company. SoftBank, the main investor in WeWork, agreed a $9.5 billion deal to rescue the company from financial oblivion. Softbank will own 80 percent of the company, and the deal values WeWork at about $8 billion.
As part of this rescue package, Neumann was given a $1.7 billion golden parachute, something that the Japanese investment giant is now trying to cut back. Neumann was to sell up to $970 million worth of stock to Softbank, receive a $500 million credit line to cover his personal debts, and secure $185 million in consultancy fees over four years. Bloomberg is now reporting that some SoftBank executives are saying his exit package is too generous.
At the start of November WeWork announced a 90-day plan to get the company back into shape. The company will divest its interests in companies such as Conductor, The Wing, Managed by Q, Meetup, SpaceIQ, and Wave Garden. These are non-core businesses that the new management feels is weighing the company down. It’s hard to argue with that sentiment given Wave Garden is a technology company aiming to create artificial waves for surfers. However, the firm doesn’t appear to have plans to curtail its rapid growth, and wants to open more locations than ever in the fourth quarter of this year. That will do nothing to help losses in the short term. In the first half of the year, WeWork reported an almost comical figure of $1.37 billion operating losses.