(Reuters) – WeWork owner The We Company is considering slashing the valuation of its planned stock market launch to below $20 billion, two people familiar with the matter said, the latest blow to leading tech investor SoftBank Group (9984.T) after limp flotations of Uber (UBER.N) and Slack (WORK.N).
Having previously hoped to be in a position to begin its roadshow to pitch the initial public offering (IPO) to investors as early as this week, We Company may now wait until Monday of next week, one source also said.
The valuation for the money-losing U.S. office-sharing startup could be as low as $15 billion-$18 billion, one of the sources with direct knowledge of the matter said, roughly a third of the $47 billion We Company was valued at when Softbank made a follow-on investment in the company.
The other source said the valuation was unlikely to be as low as that and both cautioned that no final decisions have yet been made and the plans around valuation and timing were all still subject to change.
SoftBank, whose $100 billion Vision Fund is widely seen as having contributed to frothy tech valuations, has urged We Company to shelve the IPO due to tepid investor demand, the Financial Times reported.
However, having burned through $2.36 billion in cash in the first half of the year, We Company requires a fresh injection of funds and SoftBank has so far been reluctant to invest further given it has already put in more than $10 billion since 2017.
Given that, We Company “may have no choice but to push ahead with the IPO at a much lower than anticipated valuation,” one of the sources said.
Adding to the importance of We Company going public is the $6 billion in bank commitments it secured in August, which is dependent on it raising at least $3 billion from the IPO or direct investors like Softbank.
The sources requested anonymity because the matter is private. SoftBank declined to comment. We Company also declined to comment during the quiet period ahead of the IPO.
We Company’s $669 billion junk bond 96208LAA9= issued last year fell below par for the first time since announcing its IPO plans about a month ago. The 7.875% note due in May 2025 was down 2.5 cents on the dollar and the yield surged by 55 basis points to the highest since mid-August.
While SoftBank and its Vision Fund emphasize their long-term investing credentials, founder and CEO Masayoshi Son has set out an ambitious IPO pipeline for tech investments spanning ride-hailing, fintech and health startups.
Putting We Company’s offering on hold would disrupt that schedule at a time when SoftBank is seeking funds from investors for a second Vision Fund, for which it says $108 billion in pledges have been secured.
WeWork, which rebranded as the We Company earlier this year, has emerged as one of SoftBank’s biggest bets.
Son and longtime lieutenant and group Vice Chairman Ron Fisher were in favor of the IPO until last week, even as others inside the group were pushing for a delay, one source said.
However, in recent days Son and Fisher have now conceded privately that a delay might be in SoftBank’s best interests, the source added.
Other sources stressed the situation was still in flux.
Sanford C. Bernstein analyst Chris Lane said that if WeWork halted its IPO, SoftBank could come up with an alternative funding plan for the startup, which he estimates needs $9 billion in funding to become cash-flow positive.
SoftBank “have got an important voice, but more importantly they have money … (We Company) will have to listen to them,” said Lane, who values the office space-sharing firm at $23 billion.
The tech conglomerate has burned through much of the $100 billion raised by its first Vision Fund in just two years, recording big paper gains on internal revaluations of its tech investments as well as the sale of marquee investments including India’s Amazon Inc (AMZN.O) rival Flipkart.
SoftBank says its valuation techniques include cash-flow analysis, recent transactions and comparison with peers to underpin its numbers, but Son has won a reputation for intuitive bets and for doubling down on companies which have yet to generate hard results.
At the end of June, the fund recorded the value of $71 billion in investments in 83 startups as having grown by $20 billion. Since then, the share prices of Uber and Slack have both fallen by around a third.
SoftBank says many investments receive a vote of confidence as third parties come in as co-investors or by making follow-on investments at the same or higher valuations.
If a tech company shelves an IPO due to a lower valuation than expected, investors are generally expected to take that fall into account when appraising their stakes.
Additional reporting by Tim Kelly in Tokyo, Julie Zhu in Hong Kong, Bharath Manjesh in Bengaluru and Dan Burns in New York; Writing by Sam Nussey; Editing by Stephen Coates, Muralikumar Anantharaman and Tom Brown