WeWork to go public via BowX SPAC

Equities

WeWork is to go public via a SPAC merger with BowX Acquisition Corp in a deal valuing the company at around $9bn. Shares in BowX (NASDAQ: rose 5% in pre-market trade to above the nominal $10 it listed at. The move will allow WeWork to trade a publicly-listed stock without the kind of scrutiny that kyboshed its abortive 2019 listing. The $9bn is substantially below the roughly $47bn discussed when it filed for its 2019 IPO.

The deal is funded by $483m in cash raised by BowX plus $800m in private investment from investors including Fidelity, BlackRock and Starwood Capital. The deal provides WeWork with about $1.3bn in capital “which will enable the company to fund its growth plans into the future”, it said. Upon completion, the company will have approximately $1.9 billion of cash on the balance sheet and total liquidity of $2.4 billion, including a $550 million senior secured notes facility to be provided by SoftBank Group.

As noted on Tuesday, WeWork announced losses of $3.2bn last year as it pitched for a SPAC listing and $1bn investment. This was a narrowing from $3.5bn burnt in 2019 because it slashed capex to the bone, cutting investment from $2.2bn to $49m. Occupancy fell to 47% from 72%, but the company expects to rebound to 90% next year, which seems optimistic. As does an expected doubling of revenues to $7bn by 2024. We looked at the leasing structure back in 2019 in some depth and it hard to see how WeWork will gain more customers as the effects of the pandemic seem set to linger. In particular, having had experience of the WeWork goldfish bowl cubicles, they are exactly the opposite of what workers will desire as they return to offices – more open plan please.

As noted on Tuesday: Investors who might have got swept up in a WeWork IPO in 2019 will be grateful the listing got pulled. Now they get another chance to get burnt by WeWork’s ambitions. SPACs mean it’s even easier to go public and I’m sure they will find some willing backers for this serviced office provider tech platform. The pandemic has radically transformed the services office landscape from 2019 but WeWork has also been forced to change for other reasons too and is more streamlined than the bloated entity it once was, but it remains overly optimistic both about its prospects and those of the market in which it operates. It’s just all too easy with a SPAC and only underlines the concerns about this craze and the misallocation of capital it is fostering.

Elsewhere, GME stock trades +6% in pre-market after yesterday’s 52% jump. Dow and S&P 500 futs suggest Wall Street will add to Thursday’s gains. European stocks are holding onto early gains and trade broadly positively. Eyes on US bank stocks after the Federal Reserve said Thursday they can accelerate dividend and buybacks after June 30th as long as they pass the latest round of stress tests. US 10s trade up at 1.675% post the 7-year auction yesterday.

In FX EURGBP is the one to watch as the pair takes a fresh look at the key 0.8540 support, with little in the way below this to block a move to an 82 handle.