WeWork Investors Turned Off by 'Sloppy' IPO Filings

WeWork omitted information about its governance, including that its then-Chief Executive Adam Neumann had been on the board’s compensation committee. Photo: Jackal Pan/Visual China Group/Getty Images

The more investors learned about WeWork, the less they liked it. The details that were wrong or omitted from its financial disclosures may have soured them even more and may pose a risk if the company tries to go public again.

WeWork parent We Co. misstated the number and cost of the working desks it set up in the first half of the year when it first filed in August to go public. The company also omitted information about its governance, including that its then-Chief Executive Adam Neumann had been on the board’s compensation committee.

“Their whole approach is at best sloppy, because a lot of the important numbers don’t tick and tie, and at worst it could be obfuscation,” said Nori Gerardo Lietz, a senior lecturer at Harvard Business School who recently published an analysis of We. “I prefer to think it’s just sloppy.”

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We canceled its initial public offering last month after concerns grew among potential investors about its finances and Mr. Neumann’s behavior—leading existing investors to force him out as CEO.

With the IPO shelved, We’s incomplete financial data makes it harder to assess the company’s prospects as it tries to adapt to a future without an expected injection of $9 billion from the IPO and a bank lending tied to the offering.

The information gaps in the prospectus also mean New York-based We likely faces tougher scrutiny by the Securities and Exchange Commission, should the company—as it says it intends—try to go public again in the future.

“WeWork would be under a microscope with regulators in its next IPO go-round,” said Erik Gerding, a law professor at the University of Colorado.

We said in a statement that “as is ordinary course for all potential U.S. public companies, The We Company underwent an iterative process of amendments to its registration statement with the SEC.” An SEC spokesman declined to comment.

A prospectus is a crucial document for IPO investors. It is typically their first chance to see audited financial statements for the company, as well as details of its business model and corporate governance.

Numerous current and former We employees believe the IPO prospectus was poorly written and delivered a muddled message about their business. They cite the document’s dedication, “to the energy of we—greater than any one of us but inside each of us.”

Wall Street banks, as well as top-tier law firms Skadden Arps Meagher & Flom LLP and Simpson Thacher & Bartlett LLP, were involved in preparing the prospectus. But Mr. Neumann often rejected the recommendations of bankers—he only selected lead book-runners JPMorgan Chase & Co. and Goldman Sachs Group Inc. in the runup to the planned IPO.

A spokewoman for Mr. Neumann said the prospectus was “prepared and carefully reviewed by experienced outside counsel … the company hired the best lawyers and bankers in the world to manage the filing.” She added that “as is often the case, Adam, as the CEO, had many comments on particular drafts.”

The document leaves unanswered some basic questions about the company’s finances. For example: How many new workstations did We deliver in the first half of this year? The prospectus filed in August said 273,000. Barely a month later, an amended version said 106,000. What was the total gross cost? In August, We said $1.3 billion. In September: $800 million. The reason for the dramatic changes is that the first version was wrong, people familiar with the matter said.

Several metrics that analysts and investors said were crucial to assessing how the company’s breakneck growth is affecting its profitability and cash burn weren’t disclosed in the prospectus. For example: What does it take for an individual location to be profitable? How much future revenue is the company is committed to sharing with landlords?

The prospectus makes no mention of the company’s Gulfstream G650ER, a top-of-the-line private jet it bought last year for more than $60 million, which The Wall Street Journal has reported is now slated for the auction block.

There is also “no disclosure to the effect that if the IPO doesn’t go through, the company is in trouble,” said Sandra Peters, head of financial-reporting policy for the CFA Institute, a Charlottesville, Va.-based association that represents chartered financial analysts. We expected its IPO would raise at least $3 billion and unlock a further $6 billion in bank financing. Now, the company is bleeding cash and anticipates difficult decisions ahead, the Journal has reported.

It isn’t only the financial picture that is incomplete in the prospectus. There is no mention that Mr. Neumann sold hundreds of millions of dollars of stock since WeWork was formed in 2010, as the Journal has reported.

Under SEC rules, a prospectus doesn’t necessarily have to disclose stock sales by executives. “But the market doesn’t respond well to being surprised about these sorts of transactions,” Mr. Gerding said.

The document also wasn’t clear on some important governance issues. A draft prospectus filed last year said Mr. Neumann was on the We compensation committee in 2017, meaning he would have a say in his own compensation. The August prospectus never stated that Mr. Neumann was on the committee in 2018.

The only disclosure about whether any We executive served on the compensation committee was a line referring to boards of companies associated with We. The filing said that no executive served on the compensation committee “of any entity that has one or more executive officers who served on our board of directors … during the year ended December 31, 2018.” Mr. Neumann was on the committee last year, according to people familiar with the matter.

The SEC, which oversees company filings, vets every prospectus and often requests changes. A company can’t go public until the final version of its prospectus gets the green light from the regulator. We hadn’t reached this point; the company was preparing to file another amended prospectus when it pulled its IPO plans last month. We said in its statement it looks “forward to restarting the IPO process in the future.”

The SEC pushed back on the We prospectus, requesting multiple changes in a monthslong back-and-forth with company, according to people close to the process.

The regulator’s comment letters won’t be published unless We goes public. But the company made some marked changes to its original prospectus in the revised version published last month.

A section headed “illustrative annual economics” that assumed 100% workstation utilization vanished, for example, as did two graphs portraying a typical location going from “-$” to “+$,” with no y-axis showing the actual dollar amounts being depicted.

Write to Jean Eaglesham at [email protected] and Eliot Brown at [email protected]

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