WeWork and The BowX Acquisition SPAC (BOWX) have set Oct. 19 as the merger voting date to approve the business combination. After the initial spike where BOWX stock went as high as $13.93 after the merger announcement, it now trades very near the $10 price level. Will WeWork stock go up after the merger date?
Several SPACs are even trading below the SPAC IPO price of $10. Also, multiple stocks are trading way below $10 after the merger. These stocks include the more hyped names like Beachbody. Another interesting aspect of SPAC mergers has been the wave of redemptions. Huge redemptions leave the merger target with too little cash.
WeWork and BOWX merger date
WeWork would get listed on Oct. 21 subject to shareholder approval. After the merger, the combined entity would trade under the ticker symbol “WE.” This is WeWork’s second attempt at going public. The first attempt was in 2019 and it failed miserably.
This time, instead of the traditional IPO, WeWork chose the SPAC merger route. However, SPAC mergers aren't as attractive of a listing option now amid the huge wave of redemptions and investors' general apathy towards these blank-check companies.
Is WeWork stock undervalued?
The merger with BOWX valued WeWork at $9 billion. That’s a fraction of the $47 billion valuations that it commanded in 2019 after SoftBank infused $2 billion in the company. In the IPO also, it was looking at a valuation in excess of $45 billion.
While most other companies that have gone public over the last year commanded a massive premium over the private market valuation, WeWork is seeking only a fraction of its private market valuation in the heydays.
However, the most recent private market transaction, which was a bailout for all practical reasons, valued the company at $8 billion. The COVID-19 pandemic started and changed the business dynamics for companies like WeWork.
How has the COVID-19 pandemic impacted WeWork?
The COVID-19 pandemic has been a headwind and a tailwind for WeWork. As more companies contemplate a work-from-home option for many of their workers, the demand for office spaces will come down. However, there's also another side of the story. Some of the companies that would have otherwise gone for a long-term lease might now prefer WeWork's flexibility.
In August, WeWork released its second-quarter earnings, which showed sales rising to pre-pandemic levels. However, it also lowered the business projections and said that the losses in 2021 would be wider than expected, while revenues would be lower than what it had previously forecast.
Will WeWork stock go up after the merger?
Meanwhile, WeWork has taken several measures to address the perennial losses and cash burn. It has exited some of the markets and has been working towards improving the profitability including lowering the total headcount.
The company expects sales to fall 17 percent this year and projects a 64 percent rise in 2022. As I mentioned previously, the business forecasts provided by WeWork look optimistic. The company continues to burn cash and the current forecasts might not come true.
Overall, even the $9 billion valuation that WeWork is seeking might appear a bit stretched. While the stock might rise around the merger date, as we have seen in many other de-SPAC transactions, it might weaken afterward.