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Oct. 22, 2019, 11:50 p.m. EDT

WeWork accepts SoftBank takeover, pushing out co-founder Adam Neumann

WeWork gets $5 billion lifeline, ex-CEO reportedly will get nearly $2 billion to walk away

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By Associated Press

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Neuman, who grew up partly in a kibbutz, had dazzled private investors with his vision of creating workspaces that foster communality and cater to the overall well-being of its members. The company launched side businesses including a fitness company called “Rise by We” and the co-living rental company “WeLive.”

Those projects now appear on the chopping block. Last week, WeWork announced it would close WeGrow, its newly launched Manhattan elementary school. Days later, the company scrapped a deal with a top Seattle real estate firm for a building that would combine its WeWork offices spaces with its WeLive communal apartment rentals.

WeWork, which has locations in 111 cities around the world, is also slowing its expansion plans. Last week, the company canceled plans to lease space in U.S. Steel Tower, Pittsburgh’s tallest building.

But the company could face an uphill battle to curb costs related its future lease obligations, which amounted to $47.2 billion as of June 30. Most of its leases don’t have provisions to let the company out of them early, and the average initial term of its U.S. leases is 15 years.

“It’s a huge liability. There’s a very blunt option called bankruptcy that I’m sure everyone wants to avoid. It would be a last resort, but I’m sure it’s an option that is on the table if they can’t get out of leases peacefully,” Perkins said.

WeWork had faced few palatable options since pulling out of the IPO, which the company had been counting on to raise $9 billion in stock and related debt financing.

The company decided to accept SoftBank’s over a high-risk debt-financing proposal from J.P. Morgan Chase & Co. /zigman2/quotes/205971034/composite JPM +0.69%  , which had been the lead underwriter of the failed IPO.

WeWork was sitting on $2.5 billion in cash and cash equivalents at the end of June, but it burned through nearly $199 million in the first six months of the year just operating its business.

On top of that, WeWork spent $2.36 billion on new leases and other investments, an amount that had been offset by $3.43 billion raised though venture capital and high-yield debt. The person familiar with the negotiations said WeWork had been on track to run out of cash by the end of November without the new financing.

MarketWatch contributed to this report.

/zigman2/quotes/205971034/composite
US : U.S.: NYSE
$ 138.20
+0.95 +0.69%
Volume: 14.70M
Jan. 17, 2020 6:30p
P/E Ratio
12.89
Dividend Yield
2.60%
Market Cap
$433.46 billion
Rev. per Employee
$497,647
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