WeWork has announced that it will move forward with a 1-for-40 reverse stock split as a means to meet listing requirements. This decision comes shortly after the company expressed concerns over its ability to sustain operations. Since going public through a blank-check merger in October 2021, WeWork shares have experienced a significant decline in value, with the latest drop of 23.6% on Friday, leaving them at just 12 cents. This turn of events has caused WeWork’s market capitalization to plummet from its previous valuation of $47 billion to approximately $336 million.
The downward spiral for WeWork began when its plans for an initial public offering in 2019 fell through due to investor concerns about substantial losses and doubts about its business model. WeWork leases office spaces for the long term and rents them out on a short-term basis. These concerns have persisted, as the company recently reported a 3% decrease in total physical memberships compared to the previous year. WeWork attributed this decline to increased competition, macroeconomic volatility, and softer demand than anticipated.
In the past year, WeWork has taken several steps to conserve cash, including exiting certain locations, reducing its workforce, and striking a deal to decrease its debt by approximately $1.5 billion and extend the maturity dates of some obligations. However, the company faced another setback in May when CEO Sandeep Mathrani, tasked with turning the company around, resigned. This departure was followed by the exit of CFO Andre Fernandez during the same month.
To address non-compliance issues with the New York Stock Exchange, which notified WeWork of its failure to maintain an average stock closing price above $1 for 30 consecutive trading days, the company has implemented a reverse stock split. This process involves consolidating existing shares into a smaller number of shares, with the aim of meeting the minimum $1.00 per share closing price required for continued listing. CEO Sandeep Mathrani resigned in May, further exacerbating the company’s challenges.
Analysts speculate that the reverse stock split may indicate WeWork’s exploration of options to raise additional capital. Shareholders approved this action in June, and it will officially take effect at the close of the market on September 1.
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