As the tide goes out, the lawyers move in
It will take more than a pandemic to shut down the lawyers. As the world economy grinds to a halt after a largely tranquil decade, boomtime excesses and over-reach will slowly be revealed. Late Wednesday, SoftBank announced that it would not complete a US$3 billion tender offer for shares in WeCompany, the parent of US flexible offices group WeWork. Those tendering included WeWork cofounder, Adam Neumann, Benchmark Capital and company employees.
The Japanese tech investor cited contractual conditions that it said had not been met. But the suspicion was that SoftBank, after already ploughing US$14b into the co-working space, was unenthusiastic about dumping more money into a concept that was floundering even before coworking was ended by coronavirus.
WeWork, unsurprisingly, said it was considering litigation to enforce what it thought was a done deal. The business, once valued at an absurd US$47b, remains private but its latest valuation, pre Covid-19, has shrunk below US$10b. Its bonds have now dropped to 35 cents on the dollar, signalling that the company may have no equity value whatsoever.
On Wednesday morning, Luckin Coffee, which had been billed as the
Starbucks of China, announced that it was commencing an internal investigation into allegations that an executive had been “fabricating certain transactions”.
Luckin listed its shares in the US last year to a great fanfare, eventually reaching an equity value of over US$12b. But analysts had long raised questions about the veracity of its eyepopping growth. It was hard to work out how a coffee delivery company could ever make money. In its latest quarter, Luckin reported that yearover-year sales growth nearly doubled. Lawsuits about securities fraud are sure to follow.
It is not surprising that in benign conditions, scrutiny becomes lax. Money flows slickly. Markets are rising, rewarding enterprises that are rosily promising growth, whether it be in short-term office rentals or coffee consumption in Shanghai.
Entrepreneurial over-reach is always with us. So is the tendency of bankers, lawyers, accountants, PR professionals — and even some business journalists — to go with the flow, permitting or hyping up bad business propositions. The difference is that these guardians of capitalism rarely suffer personal consequences when it all goes wrong. As the next set of scandals emerge, it is time that changed. The Financial Times