Once valued at $47 billion dollar by investors in 2019, America's major firm WeWork has officially filed for bankruptcy. WeWork, headquartered in New York, filed for bankruptcy in a New Jersey federal court. WeWork bankruptcy has indeed garnered global attention as the US company was once labeled as the future of the office spacing industry. For the unversed, WeWork was founded in 2010 by Adam Neumann and Miguel McKelvey. It had envisioned creating a ‘physical social network’ for a new class of workers who were freelancing or working from home.
WeWork's business model worked on signing long-term leases for office buildings, sprucing up those spaces, and then renting them to freelancers and companies. Now, the question arises what is WeWork's bankruptcy reason or what went wrong with WeWork? Below are the five reasons why WeWork went bankrupt-
1) WeWork is a SoftBank Group-backed startup. Among the major reasons why WeWork went bankrupt was the COVID-19 pandemic. Yes! you heard it right. As per reports, due to the COVID lockdown and market slowdown after restrictions were lifted, Softbank had to double down on the investment. Also, WeWork had to rope in Sandeep Mathrani as its CEO. In 2021, SoftBank cut a deal to take the company public through a merger with a blank-check acquisition company at an $8 billion valuation. This desperate action by Softbank to save WeWork worked to some extent as the space-providing company managed to amend 590 leases, and saved about $12.7 billion in fixed lease payments. However, the ship had already sailed too deep for WeWork as it proved to be too little to compensate for the fallout from the COVID-19 pandemic, which had kept office workers at home.
2) Apart from COVID, WeWork also faced competition from its own landlords. As per a US-based newswire report, commercial property companies that had only entered into long-term rent agreements started offering short and flexible leases to cope with the downturn in the office sector.
3) WeWork continued to chop and change its leadership. In 2023, Sandeep Mathrani was succeded by former investment banker David Tolley as the WeWork CEO. Notably, David Tolley had helped a debt-stricken satellite communications provider emerge from bankruptcy in 2022.
4) WeWork bankruptcy started when the US firm hurt its reputation after a disastrous 2019 effort to raise money in a public listing. This led to the ousting of co-founder Adam Neumann. Soon after this, COVID struck in the same year.
5) Notably, WeWork finally went public in October 2021. However, it again brought the limelight to Adam Neumann. As per US media reports, Adam Neumann was not only ousted for the failed attempt to register WeWork on IPO, he was reportedly shunted for his erratic behavior and exorbitant spending spooked early investors.
As of now, WeWork in its bankruptcy filing reportedly informed that it has liabilities of $10bn to $50bn (£40.5bn). The filing of bankruptcy will help WeWork. It will provide the company with legal protection from its creditors and more tools for negotiations with landlords. The company's shares last traded at $0.84 apiece.