Jefferies slashed the value of its stake in WeWork by $146 million more than two weeks before its failed IPO

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WeWork cofounder and former CEO Adam Neumann. Getty

  • Jefferies slashed the estimated value of its investment in WeWork by $US146 million on August 31, more than two weeks before the shared-workspace group shelved its plans to go public.
  • The investment bank’s adjustment reflected a “significant discount due to uncertainty regarding the timing and pricing of We’s IPO,” CEO Rich Handler and President Brian Friedman said in the earnings release.
  • “As the facts at We become clearer, further adjustments may be made in future periods,” they added.
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Jefferies slashed the estimated value of its investment in WeWork by $US146 million on August 31, more than two weeks before the shared-workspace group shelved its plans to go public.

The investment bank’s adjustment reflected a “significant discount due to uncertainty regarding the timing and pricing of We’s IPO,” CEO Rich Handler and President Brian Friedman said in the third-quarter earnings release.

“As the facts at We become clearer, further adjustments may be made in future periods,” Handler and Friedman added.

Jefferies has earned $US31 million in cash from its $US9 million investment in WeWork, and retains a 0.8% stake in the company, according to its earnings report. It cut the estimated value of that holding well before WeWork postponed its IPO plans on September 17, suggesting it was having doubts.

Ahead of its flotation, investors balked at WeWork’s business model, valuation, complex structure, questionable governance, and the behaviour of cofounder and CEO Adam Neumann. The concerns meant WeWork was looking at a public valuation below $US20 billion – a sharp drop from the $US47 billion private valuation it secured in January – which risked it raising less than the $US3 billion necessary to secure $US6 billion in bank financing.

Following its IPO failure, WeWork has replaced CEO Adam Neumann with two co-CEOs and taken steps to revamp its corporate structure, improve its governance, and staunch its surging losses.

The WeWork writedown fuelled a pre-tax loss of $US43 million in Jefferies’ merchant banking division, a big swing from its pre-tax income of $US219 million in the third quarter of 2018. Strong showings from its investment banking and sales and trading segments failed to offset the damage, meaning overall net income slumped by nearly 75% to $US48.5 million.