14:27, September 10 37 0 theguardian.com

2019-09-10 14:27:04
Nils Pratley on finance  
 WeWork looks like a bubble waiting to burst

One way not to recognise a potentially heavy investment loss is to close your eyes, ignore the evidence and pretend nothing has happened. This seems to be Masayoshi Son’s approach at WeWork.

The SoftBank tech investor wants WeWork to abandon its flotation, reports the FT (£), for reasons that are not hard to guess. A listing in New York would expose the horrible truth about the allegedly hip workspace landlord. It ain’t worth $47bn, the value at which SoftBank injected the last portion of its $10.5bn investment. Try $15bn-$20bn, suggests Wall Street.

Even the lower range looks rich. The problem with WeWork runs deeper than the teeth-grinding corporate mission statement (“A place you join as an individual, ‘me’, but where you become part of a greater ‘we’”). First, there’s the losses – $1.9bn last year – with more expected into the middle distance.

Second, there’s the unflattering financial comparison with London-listed property group IWG, which has been in the same marketplace for years and makes real profits, but is worth a more sensible £3.6bn.

Third, there’s an obvious risk in taking on long leases on big buildings and offering tenants short, flexible rents. In a recession, tenants may decide to trade down and forgo WeWork’s funky murals and cheese-tasting events, but the landlord’s lease costs would remain fixed.

Fourth, and perhaps most seriously, there’s WeWork’s breezy style of corporate governance. Co-founder Adam Neumann wasn’t obviously living up to the spirit of collective endeavour when his investment vehicle was paid $5.9m by the company for the right to use the trademarked word “we”. The sum has been repaid but how was the arrangement ever approved?

Fans may counter that the sleepy world of shared office spaces was overdue a dose of innovation and global branding. Maybe, but WeWork remains a bricks and mortar company. It is not Alibaba, the Chinese online retailer where Son made a fortune.

The flotation conundrum sets up serious tension. WeWork needs to raise $3bn-plus to keep expanding and unlock further investment. SoftBank, on the other hand, won’t want to record a formal loss on its punt while it’s looking to raise $100bn for its next Vision fund. It will still be in money on the early portions of its investment but any valuation for WeWork below $25bn looks likely to imply an overall loss. Even SoftBank’s normally reliable Saudi backers would be unimpressed.

The rest of us, though, can cheer Wall Street’s refusal to play ball. It suggests rational analysis is returning to a stock market where, for a while, it seemed any over-hyped mega-venture with famous private equity-style backers could name its price. WeWork always looked like a bubble. Deflation had to happen.

The CBI needs to calm down on Corbyn

Advice for the CBI: damning all Jeremy Corbyn’s economic proposals with equal fury doesn’t work. Sometimes the Labour leader will produce ideas that big business might live with happily, or even come to applaud.

A ministry for employment rights and a workers’ protection agency – the central pitch in Corbyn’s address to the TUC Congress in Brighton on Tuesday – should not frighten any responsible employer. Enforcing employment laws vigorously might even benefit companies who would not think of breaching rules in the first place. Free-riders would find life harder and competition might be made marginally fairer.

It is not a revolutionary idea – and certainly not a case of “turning back the clock decades”, in the CBI’s excitable catch-all language. Sports Direct was obliged to reform working practices at its Shirebrook warehouse after this paper’s investigations in 2015 and a Commons select committee’s report. The affair struck a chord because workers – and, most fair-minded bosses – can recognise grubby behaviour.

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Some other Labour business proposals, it is true, do not stand up to scrutiny or would not even achieve their aims, as argued here in the past. The “inclusive ownership fund”, via which 10% ownership of every large company would be transferred over a decade to a workers’ pot, should be binned.

The biggest beneficiary, by far, every year would be the Treasury since dividends for employees would be capped at £500-a-head. There is nothing inclusive about second-class share ownership, especially when workers’ existing pension schemes would suffer from the share dilution. If Labour wants to boost employee share ownership, cleverer approaches are available.

But not every Labour idea is as radical as the CBI seems instinctively to believe. Ensuring that employment rights are respected should not be controversial. It would do the CBI no harm to say so.



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