WeWork Value: Fidelity Says -35%, Ackman Says Zilch
The topic of WeWork’s valuation is back in the news again after talk of Fidelity Contrafund cutting its investment and Bill Ackman criticizing the company.
Oct. 30 2019, Updated 7:24 p.m. ET
The topic of WeWork’s valuation is back in the news again. A company that once touched estimates of $47 billion, WeWork is systematically losing market support with time. Coming back from the verge of launching a potentially overvalued IPO, WeWork gradually lost out many of its pre-IPO investors in the OTC markets. The San Francisco–headquartered co-workspace rental company was once highly rated. But now, according to the New York Times, it has become a money pit.
Some sources claim that Fidelity investments devalued WeWork stake holdings with its mutual fund, Fidelity Contrafund. The valuation cut is approximately 35% lower than the one-month-prior figures. Contrafund assets total over $100 billion and are the “largest solely managed active equity mutual fund in the world.” The current manager of the mutual fund is Will Danoff. Danoff is one of the best-known names in the mutual fund industry, and he has a track record of two and a half decades.
Fidelity cuts WeWork investments by 35%,
The news about Fidelity Investments cutting down the value of its WeWork investments also appeared on Reuters. However, Fidelity has not yet made any comments.
Contrafund had invested in WeWork back in June 2015. At the time, Contrafund purchased a stake in the office sharing and workspace rental company for around $180 million ($179.7 million, to be precise). In place of the investment, Contrafund secured Series E shares of WeWork. These Series E shares were valued at $411.5 million by the end of 2018. At the end of August 2019, these Series E investments were estimated at $295 million. After the devaluation, the shares are currently valued around $193 million as of the end of September.
However, one of the underlying notions for the revised valuation is that the holdings position is the same. In other words, none of the shares were either bought, sold, or transferred during the period.
Bill Ackman says WeWork could be worth zilch
As the Financial Times reported, another one market veteran also commented on the WeWork valuation. Founder and CEO of Pershing Square Capital Management Bill Ackman made some comments during the Robin Hood Investor Conference 2019. The conference took place from October 28 to October 29.
Bill Ackman was critical about WeWork shares and said that the valuation could be close to zilch. Ackman commented, “I think WeWork has a pretty high probability of being a zero for the equity, as well as for the debt.”
He also said that SoftBank’s attempt to turn the company around could be a mistake. Ackman’s comments suggest that, instead of investing in WeWork, the funds could be more useful elsewhere.
WeWork and Softbank
Softbank was one of the early investors in WeWork. In September, the IPO launch got sidelined. Reports hinted that the office space rental company could soon face a severe cash crunch. Other analysts commented that the WeWork business model is flawed. At this time, Softbank came to the rescue. The chief executive of Softbank, Masayoshi Son, said, “SoftBank has decided to double down on the company by providing a significant capital infusion and operational support.”
Softbank committed to a plan involving further investments of around $9.5 billion. Supposedly, Softbank will invest in three tiers. It will apparently buy back $3 billion worth of shares from WeWork investors, loan $5 billion to WeWork, and finally invest $1.5 billion in WeWork. Softbank originally committed the $1.5 billion investment for next year.