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SoftBank to write down WeWork by $6.6B, compounding portfolio misery
- ckastner 6y ago> The tech conglomerate has poured more than $13.5 billion into WeWork So the potential downside is still even larger. Seeing as WeWork needs to continue to pay their long-term leases, 2020 is not going to look good for them thanks to Covid-19.
- leowoo91 6y agoIf the main lose is on the leases, isn't that where corporate lawyers involve or foresee that kind of situations? Are they still paying all of the lease during pandemic?
- M2Ys4U 6y agoVictoria's Secret managed to put a "you must continue paying even if there's a pandemic" clause in a contract signed _in February_ so... it wouldn't surprise me if We Work still had to pay rent given how well (read: not well) the company is run.
- EwanToo 6y agoWhen the CEO owned some of the buildings they were leasing, I can imagine a scenario where the lawyers were told not to look too hard at the paperwork...
- exhilaration 6y agoCan you give us a link to a story about this? I'm curious to see how (some) companies planned for the economic downturn.
- perl4ever 6y agoIt was mentioned in Matt Levine's columns of the 23rd and 24th. Unfortunately, I assume those are behind Bloomberg's paywall. Here is a quote from L Brands courtesy of Levine: "Sycamore ignores a fundamental problem with its apparent case of buyer’s remorse: At the time the parties negotiated the Agreement, the world was already well aware of the existence of COVID-19, and the parties agreed that Sycamore would bear the risk of any adverse impacts stemming from such a pandemic. … Sycamore and its representatives may wish that the world did not have to face the pandemic that now confronts us, and may regret that they did not negotiate the allocation of pandemic risk differently in the Transaction Agreement. But having made that commercial choice, Sycamore must now live by it."
- rndgermandude 6y agoThe landlords have lawyers too. A landlord would not go for a rental contract that places the risk of something like a pandemic solely on their own shoulders. Those landlords more often than not financed the property (development, property costs, construction) with long term loans themselves, so they have to repay that with interest in top of what the taxman wants, payroll, etc.
- roland35 6y ago“Every writedown takes Wework’s carrying value closer to reality. Clearly the value is zero,” said Kirk Boodry, an analyst at Redex Holdings. I wonder if the value will be less than 0 soon with all of the liabilities WeWork has!
- dannyw 6y agoLimited liability companies cannot have a value less than zero in general. However, WeWork’s lawsuit against SoftBank could very well be successful; effectively making it negative for SoftBank.
- Traster 6y agoWeWork's lawsuit against softbank only succeeds if it lives long enough to get to a court decision, and Softbank are in quite a strong position to stop that happening.
- code4tee 6y agoWhen the final lifeline for your company is suing your primary investor over competing definitions of just how terrible the company is performing then I’m not sure it’s worth much for either party!
- adreamingsoul 6y ago"A billion here, a billion there, pretty soon, you're talking real money." -- Everett Dirksen
- samizdis 6y agoThere is dispute as to whether Dirksen said that [1]. According to Wikiquote, when asked whether he had said it, Dirksen said: "Oh, I never said that. A newspaper fella misquoted me once, and I thought it sounded so good that I never bothered to deny it." [1] https://en.wikiquote.org/wiki/Everett_Dirksen#Misattributed https://en.wikiquote.org/wiki/Everett_Dirksen#Misattributed
- adreamingsoul 6y agoFascinating! thanks for sharing.
- onetimemanytime 6y ago"A billion here, a billion there, pretty soon, you're talking Saudi and other dumb investor's money." -- Unknown
- aryonoco 6y agoBest quote from an analyst: “Every writedown takes Wework’s carrying value closer to reality. Clearly the value is zero,”
- simonh 6y agoThe shame is that they will probably blame all of this on the Pandemic, rather than fundamental issues with the business that were becoming clear long before the virus hit.
- freepor 6y agoNot really. Their thesis disintegrated way before this. Their thesis was that that even in a market with weak network effects, customer acquisition costs are high enough that you can spend your way into such a dominant mindshare that you end up with monopolistic or oligopolistic returns. The thesis is basically trashed at this point. The upfront costs are too high and the mindshare dominance is too fragile.
- alexis_fr 6y agoA lot of businesses will hide their failure under the pandemic. This is really bad, since people with wrong business models in upside trends, will get access to benefits and help in downside periods by having an excuse for their failure, encouraging ineffective business models.
- pgt 6y agoIn this case, I don't think anybody is fooled.
- rchaud 6y agoThe blame for this falls solely on the laughable prospectus they issued ahead of the IPO. I was relieved that everyone in the finance world appeared to call it for what it is. While I hope the BOJ and the Japanese taxpayer aren't on the hook for Softbank's hubris (not just with WeWork but also Oyo and Uber), I am glad that pension and mutual funds won't have any exposure to this flaming pile of garbage.
- 52-6F-62 6y agoFoodora just sort of did this with their announcement of exiting the Canadian market. That combined with the labour action they faced, though they were even somewhat publicly mum about that one.
- Droobfest 6y agoThe highly leveraged conglomerate has been forced into selling major assets to raise funds, but could receive a big boost from the Bank of Japan’s plan to expand corporate bond buying, which would support its predilection for borrowing. The Japanese taxpayer (Yen-holder) having to support the losses of Adam Neumann's personal money tree seems pretty crazy to me.
- PedroBatista 6y agoThis happens all the time all over the World, the more you learn about it the more you lose "faith" in whatever you're doing. But it's all psychology 101 really, once you are viewed as "too big to fail", everyone contributes to your gigantic scam like a nervous peasant and they'd rather do it forever than take the hit now and let it burn.
- arethuza 6y agoAppropriately enough I saw this about RBS today: https://www.bbc.co.uk/news/uk-scotland-scotland-business-52478639 https://www.bbc.co.uk/news/uk-scotland-scotland-business-524... They got £46 billion from the UK government.
- ssharp 6y agoI might be missing the nuance here but how is WeWork "too big to fail"? While many were against the 2008-09 bailouts, you could at least see the logic of why the cost of the wake left behind from a company like General Motors radically reorganizing or dissolving would be worse than the cost of bailing them out. What happens if WeWork dissolves? Softbank and its investors lose a couple billion. They'll survive. WeWork owns some real estate and would leave behind office space that's already built out for short-term leasing. They'd be leaving behind something that can be mostly done turn-key by the next owner, hopefully on a smaller scale, with less ambitious growth expectations. They wouldn't be leaving behind an entire supply chain that extends well beyond themselves.
- xuki 6y agoGP is talking about SoftBank. With that kind of debt it's likely that SoftBank will need to get bailed out by the Japan government, i.e. Japanese tax payers.
- _pmf_ 6y agoI'm starting to believe this is some plot to disenfranchise the Saudis, because the dimensions are too large for plain stupidity.
- TheOtherHobbes 6y agoThe Saudis are perfectly capable of organic home-grown stupidity. MBS has an impressive record of investment failures. It's possible he's part of a secret plot to destabilise the entire region and bring the reign of the House of Saud to an end, but it's just as likely he's a privileged playboy fool who has no idea what he's doing.
- Ididntdothis 6y ago“Don’t explain with malice what can be explained with stupidity “.
- 9nGQluzmnq3M 6y agoHe has an equally impressive record of non-investment failures as well: the war in Yemen, assassinating Khashoggi, etc. And I agree that Occam's Razor argues for the latter.
- lowdose 6y agoHanlon's razor https://en.m.wikipedia.org/wiki/Hanlon%27s_razor https://en.m.wikipedia.org/wiki/Hanlon%27s_razor
- lefstathiou 6y agoI wonder if Japanese tax laws are similar to the US in that they incentivize write downs to create net operating losses to offset future profit. For SoftBank, which operates a very profitable core business, losses here could ensure no tax payments for years to come. This happened in 08 with many of the fire sales in the mortgage and banking business.
- code4tee 6y agoWeWork is effectively worth nothing at this point. Their revenue surely has tanked given everything and won’t just magically return to normal. They’re sitting on massive liabilities with all the leases and capital they invested in locations. Yes leases could be renegotiated etc. but given WeWork’s woes that long predate COVID-19 it’s very unclear how they survive much longer beyond perhaps being sold for scrap in some sort of fire sale. It’s crazy to remember that less than a year ago there was serious movement towards a WeWork IPO.
- nutshell89 6y agoI'm curious as to how this might impact other Vision Fund companies like Fanatics or Mapbox.
- shadowpawn 6y agoI do miss the free beer and wine at my local WeWorks from 1500 each work day :-(