WeWork still on life support, rivals say it must cut costs fast

NEW YORK (Reuters) — SoftBank may be rescuing WeWork with a $9.5 billion cash injection but most rivals say they believe the office space sharing company is still in critical condition.

They say for Manhattan-based WeWork to survive it will need to slash costs and balance sheet risk, and it will need to do that fast without scaring off customers.

In interviews, six rivals were mostly more sober than gleeful about WeWork’s fall to earth, which has seen estimates of its valuation drop from $47 billion or more in August to as little as $5.9 billion based on terms of the SoftBank lifeline. Hedge fund investor Bill Ackman warned last week it may be worth nothing.

The company was forced to abandon its plan for an initial public offering as investors questioned big losses, whether its business model was sustainable, and the way it was run by its cofounder Adam Neumann, who subsequently quit as chief executive.

Through its rescue, Japanese technology investment company SoftBank Group is seeking to protect its previous investment of about $10 billion in WeWork, though many investors and analysts question whether it will ever be able to recoup that. Its stake will rise to 80 percent from 30 percent.

Rivals suggest many ways for

WeWork to reduce losses, all painful.

They include closing or selling operations in some secondary or poorly performing places, as well as getting out of activities such as construction that are not essential to its main business. The competitors say WeWork should also stop discounting, mothball some of the floors of newly leased real estate, and seek new ways to partner with landlords and investors.

Big job cuts are a given.

But it is a long road to profitability. “When I try to do the math with divestitures of non-core (businesses) and layoffs, those things alone are not buying them enough runway,” said Joshua White, managing director of MakeOffices, which has 16 office sharing sites across three U.S. cities.

He said WeWork has to “switch from growth at all costs to profit at all costs,” but the long-term leases it has signed are a barrier. Getting out of those could mean large penalty payments.

“WeWork is in a very challenging situation,” said Charles Robinson, senior vice-president for U.S. operations at Servcorp, an Australia-based company with more than 160 sites across the globe. “They’re going to have to look at ways of getting some of those liabilities off their balance sheet without destroying their reputation.”