Cause for concern: should WeWork’s IPO filing raise questions for potential investors?
▶ Chief executive is acting as a landlord and charging his company rent on property he owns
Adam Neumann is more than a founder and chief executive at WeWork, an American company providing shared workplaces. He is also a landlord, a seller of intellectual property and a financial borrower.
The business relationships involving Mr Neumann and his family were disclosed in a registration document on Wednesday for an initial public offering, expected to be the largest of the year after Uber. They show an interdependence that runs deeper than most entrepreneurs to their creations and one that raises concerns among prospective shareholders.
“As an investor, why would you be willing to put your confidence in this structure?” said Charles Elson, a corporate governance professor at the University of Delaware. “You have very few options if something goes wrong.”
Mr Neumann, 40, has long been a polarising figure. Many are drawn to his bold vision for the company, often expressed
in high-minded phrases. Its mission statement, for example, is to “elevate the world’s consciousness”. He is also dogged by criticism over previously reported transactions. In particular, Mr Neumann owns several commercial properties that he leased to WeWork, and he has sold significant amounts of his equity before the public stock offering.
The IPO filing details many more instances and indicates that Mr Neumann, who chairs the company’s all-male board, remains the central figure at WeWork. The name Adam appears 169 times in the financial prospectus, far more than any other. The company wrote in the filing that it provided the disclosures to “avoid the appearance of any conflict of interest”. A spokesman for WeWork declined to comment.
In 2016, Mr Neumann borrowed $7 million (Dh25.7m) from WeWork at a generous annual interest rate of 0.64 per cent. He paid it back early, in November 2017, with about $100,000 in interest. It was one of several times Mr Neumann borrowed company money. “From time to time over the past several years, we made loans directly to Adam or his affiliated entities,” WeWork wrote in the filing.
Mr Neumann took out a much bigger loan from WeWork a few months ago. The company lent him $362m in April at 2.89 per cent interest to help him exercise options to buy stock. This month, he repaid the debt by surrendering the shares back to the company. It is not clear from the filing why these transactions happened.
The business is, in some respects, a family affair. Rebekah Neumann, the chief executive’s wife and a cousin of Gwyneth Paltrow, is listed as a founder, chief brand and impact officer of WeWork and founder and chief executive of WeGrow, a corporate project to build and run private elementary schools. She was also among those behind a proposal this summer to hire Martin Scorsese to direct promotional videos for WeWork, Bloomberg reported last week.
Avi Yehiel, Mr Neumann’s brother-in-law and a former professional football player in Israel, has served as WeWork’s head of wellness since 2017. He receives a salary of less than $200,000, according to the prospectus. WeWork hired another one of Mr Neumann’s immediate family members to host eight events last year for a total of less than $200,000, the filing said. The events coincided with the Creator Awards, a live pitch competition with celebrity judges hosted by WeWork. The company said it spent more than $40m on the show in 2017 and 2018. In March, WeWork brokered a deal with its largest shareholder, SoftBank, in which the Japanese conglomerate agreed to reimburse the company $80m to cover costs associated with the Creator Awards.
Early this year, WeWork unveiled its new corporate brand: We Co. It then sought to acquire the trademark to “we”. The name was owned by We Holdings, which manages some of the founders’ stock and other assets. WeWork said it paid the founders’ company $5.9m for “we” this year, based on a valuation determined by a third-party appraisal. WeWork legally changed the company name last month.
WeWork also disclosed details on the widely scrutinised rental arrangements with Mr Neumann. The company said Mr Neumann owns four properties that count WeWork as a tenant. For one building, the company entered a lease within a year of Mr Neumann acquiring his ownership stake. For the other three, it signed a lease on the same
Mr Neumann is the most powerful shareholder at WeWork, thanks to three classes of stock with different voting rights
day the co-founder obtained his stakes. In the first half of the year, WeWork made cash payments to landlord entities affiliated with Mr Neumann totalling $4.2m. Those lease commitments had future minimum payments of $237m, which represented 0.5 per cent of the company’s total commitments. Mr Neumann did not extend discounts to his company, WeWork said.
Bloomberg Businessweek reported in May that WeWork was raising a $2.9 billion fund called ARK that would purchase buildings, including those owned by Mr Neumann. The chief executive said he would sell the properties WeWork wants for the same price he originally paid. The company called attention to this in the IPO filing, describing it as a mechanism for an “orderly transition” of these properties that ensures WeWork gets favourable treatment in the transfer of the assets. WeWork said it owns 80 per cent of ARK, which also counts Canada’s Ivanhoe Cambridge as an investor. Mr Neumann committed to not buying any more buildings for WeWork to occupy.
Mr Neumann is the most powerful shareholder at WeWork, thanks to three classes of stock with different voting rights. Neither Mr Neumann nor his wife takes a salary from WeWork, and the chief executive would not be entitled to severance if he left, according to the IPO paperwork.
WeWork said it has no employment agreement in place with Mr Neumann. The company would create a committee to select a new chief executive if Mr Neumann were to die or become “permanently disabled” over the next decade, the filing said. His wife would be one of three members of the committee.
One flaw in the succession plan, as outlined in the prospectus, is that it doesn’t account for a marital rift, said Mr Elson, the professor. “What if there’s a dispute between them?” he said. “The company is stuck.”