NEW YORK -- The We Company, operator of the WeWork office-sharing business, is hurrying to reconstruct its management with the support of SoftBank Group (SBG) Corp., its largest shareholder.
At the start of 2019, The We Company was regarded as a leading unicorn, or an unlisted startup with a corporate value of more than 1 billion dollar. But in less than a year, it has become a troubled company. What has spurred its rise and rapid fall?
Founded in 2010, The We Company rents floors from building owners on a long-term contract, renovates the floors and subleases rooms, desks and other facilities to member individuals and companies.
In addition to internet connections and all-you-can-drink coffee, The We Company provides spaces where individuals and companies can easily interact with each other, attracting attention as a new type of office.
The We Company has emphasized that it is not just in the real estate business, as its uses technology to design its office facilities so workers can increase their productivity.
SBG Chairman and Chief Executive Officer Masayoshi Son highly praised the company's services, saying that The We Company is creating a new office network through technology and that it would become a core company of his group.
The We Company received attention as an IT firm, and its corporate value ballooned to 47 billion dollars (about 5.1 trillion yen) as of January this year. It aimed to go public in September and was expected to become a giant unicorn.
Investors' concerns
However, the expansion policy to support its rapid growth soon faltered. The We Company rents building floors on a long-term contract for example for 15 years, but it contracts with member individuals and companies on a monthly basis. It had about 20 business bases in 2014, a number that rapidly increased to about 530 in June this year. As a result, the burden of rent for the building floors has been snowballing.
Profits from membership fees could not keep up with the rapid business expansion, which bloated The We Company's deficits. Debts related to the rental office business are said to have totaled about 47 billion dollars as of June this year.
On Aug. 14, The We Company submitted a regulatory filing to the U.S. Securities and Exchange Commission that precedes an initial public offering for investors. That filing disclosed that its sales were 1.8 billion dollars in 2018, while it incurred a deficit of 1.9 billion dollars in the year. As a result, many investors questioned whether the company could continue its operations.
There was also a scandal that cast doubt on its corporate governance. The We Company concluded a lease contract with a building owned by then CEO Adam Neumann, who founded The We Company, and The We Company paid money to Neumann, bringing criticism that he was manipulating the company for his own benefit. In September, Neumann resigned as CEO and The We Company was forced to withdraw its application for a new listing.
Large restructuring
The We Company's latest corporate value is 7.8 billion dollars (about 850 billion yen), about one-sixth the level in January this year. In November, it came out with a plan to focus on its core office-sharing business and sell off seven noncore businesses. It also announced it would cut about 2,400 employees, about 20% of its global workforce.
A real estate analyst at a U.S. investment firm said The We Company sought too-rapid growth and gave short shrift to profitability. There is strong demand for office-sharing services, and if The We Company works to eliminate its deficits and raise profitability, its financial situation will stabilize.
At a press conference in November, SBG Chairman and CEO Son said with confidence that SoftBank has gone through difficult reconstruction many times.
SBG's operating profits fell into the red for the first time in 15 years in the midterm consolidated accounting settlement for the business term ending September 2019. This is partly due to the financial deterioration of The We Company, so attention is being paid to how it should be reconstructed.
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