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WeWork personifies what’s wrong with SPACs

WeWork CEO Sandeep Mathrani (Credit: WeWork)

WeWork is trying to go public again and some of the factors that worried regulators last year have resurfaced, according to the Wall Street Journal. The shared-office provider plans to merge with a SPAC called BowX Acquisition Corp.

Backdrop: In the run-up to its imploded IPO, the SEC told WeWork to change certain profit and growth measures that it was using. The recent investor presentation is in some ways more manipulative than its presentation in 2019.

Spinning a loss-making machine: BowX’s chairman Vivek Ranadivé described WeWork in a call with investors as a $5 billion revenue company, though that figure is a projection rather than a current number. The growth forecast assumes that occupancy of WeWork buildings doubles from 47% at the end of last year to 95% in 2024.

CEO Sandeep Mathrani sounds like Neumann: Occupancy could rise further because the company’s membership model means the same space can be sold more than once. “You can actually go over 100%.

Here we go again: The SPAC pitch describes the company as a “massive growth opportunity,” with “850+ locations,” more than a million workstations and over 450,000 memberships. Those tallies include WeWork’s China and India operations, which aren’t part of the entity that is being merged and aren’t included in its financial statements, the Journal noted.

Heard on the Street: UConn’s Corporate Finance Professor Minor Myers: “The recent investor presentation by BowX has echoes of the company’s approach in 2019. The SEC could push back hard again, unless WeWork tones down these claims in its official filings with regulators, expected later this month.”

Dig Deeper: WeWork is predicting a rapid recovery from the pandemic downturn, which hit its business particularly hard because few people were using offices, much less shared space, and because it was still on the hook for long-term leases. The company is also using a new profit measure that shows higher margins than it claimed in late 2019.

WeWork responds: A WeWork spokeswoman told WSJ that the company “will always work with the SEC to ensure our disclosures comply with their requirements.”

Market reaction mystifies: Trading in BowX before the SPAC deal was announced was $11.71, and closed Friday at $12.07. [WSJ]

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