SoftBank to write down WeWork by $6.6B, compounding portfolio misery
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The Japanese taxpayer (Yen-holder) having to support the losses of Adam Neumann's personal money tree seems pretty crazy to me.
Is this considered odd? These are established companies, not startups. They don't need months or years of runway.
>despite hundreds of millions - if not billions - in annual revenue and a varying chunk of that being profit
I'm not sure why millions/billions in revenue is a relevant metric here. If they operate on razor thin margins, they're going down either way.
Obviously they do if they're demanding bailouts. That's three times in the last 20 years that the federal government has had to bail out "too big to fail" businesses... airlines in 2001, banks/automakers in 2008, and everything in 2020.
Like mbrameld said, the only reason they don't have runway is because the government will bail them out.
Isn't that only because bailouts are available for unforseen hardships that would otherwise require a runway?
OTOH, you also don't want businesses to be/look profitable simply by running on super short runways while high on debt. There are all kinds of non-black-swan things that they need to anticipate riding out if they want to be solid businesses. The culture of running on that model (as the neighboring comments note) needs to die.
A middle ground might be to just require businesses to contribute to a common "rainy day fund" that activates whenever the government has to fight a major disaster, and, as public policy, bans entire businesses.
But then, I don't see a major economic/financial difference between that, and just paying unemployment/bailouts out of general tax revenue. The only difference would be "who bears the burden" -- but it's not much a difference, given that disasters affect the whole economy at once, and most everyone is thus affected.
I'm not advocating a position -- not in this comment, anyway -- just wanted to give an overview of the dynamics.
If they know the government will bail them out in the end, they can continue to freely burn money at the expense of the Japanese people.
(And, every time bailouts are mentioned, I have to notice that it's not free money, it's loans, with interests, and 2008 bailout have actually made money for american taxpayers in the end. May be not as much money as other investments would, but it also had a nice side effect of saving american (and probably world) economy from even worse disaster).
Edit: OK, I was wroung about free money, by bad. But when the 2008 bailour is mentioned, I feel that most people discussing it still think of it as some sort of handout.
The large part of it is free money, and many major US airlines have been the worst offenders at financial engineering, spending the large part of their free cash flow on stock buybacks, and running the business on razor margins.
So any company can say that they used 100% of the money to pay for the approved things for 8 weeks, and that amount of money is forgiven.
Most of the loan is like free money to most companies.
But it's all psychology 101 really, once you are viewed as "too big to fail", everyone contributes to your gigantic scam like a nervous peasant and they'd rather do it forever than take the hit now and let it burn.
While many were against the 2008-09 bailouts, you could at least see the logic of why the cost of the wake left behind from a company like General Motors radically reorganizing or dissolving would be worse than the cost of bailing them out.
What happens if WeWork dissolves? Softbank and its investors lose a couple billion. They'll survive. WeWork owns some real estate and would leave behind office space that's already built out for short-term leasing.
They'd be leaving behind something that can be mostly done turn-key by the next owner, hopefully on a smaller scale, with less ambitious growth expectations. They wouldn't be leaving behind an entire supply chain that extends well beyond themselves.
Adam set that company up for failure and Son funded that stupid vision. Appropriately it was with the SoftBank Vision Fund.
Answer is they don’t “need” to.
It isn't logic grounded in some empirical truth. Bailouts - who gets them, as well as what would happen if not, are so subjective that there's no fair way to even go about it.
What's worse is to perpetuate a culture, model, industry that doesn't deserve to continue to operate. And by deserve, it's not my opinion, rather logic of the market dictating things.
As if that wasn't even, bailouts reward poor business practices - someone please prove otherwise!
https://www.bbc.co.uk/news/uk-scotland-scotland-business-524...
They got £46 billion from the UK government.
You think Softbank will win the lawsuit? Any idea why?
That being said, anything can happen in court.
[0] https://www.bloomberg.com/opinion/articles/2019-10-23/how-do...
He's not doing it for altruistic reasons. It's sophisticated rent-seeking via image glossing.
https://www.cnbc.com/2020/04/02/softbank-pulls-deal-costing-...
This was the deal that would have been the golden parachute for Adam Neumann as well as providing a sizable return for Benchmark.
This is now going to go to litigation, but highly unlikely that it will close as there were certain conditions to the deal closing which haven't been met.
I wonder what Japanese public opinion is regarding the central bank potentially bailing out a rich megacorp. Are they also resigned to the 'too big to let fail' philosophy that we in the west consider part and parcel of our brand of capitalism?
Their revenue surely has tanked given everything and won’t just magically return to normal. They’re sitting on massive liabilities with all the leases and capital they invested in locations. Yes leases could be renegotiated etc. but given WeWork’s woes that long predate COVID-19 it’s very unclear how they survive much longer beyond perhaps being sold for scrap in some sort of fire sale.
It’s crazy to remember that less than a year ago there was serious movement towards a WeWork IPO.
While I hope the BOJ and the Japanese taxpayer aren't on the hook for Softbank's hubris (not just with WeWork but also Oyo and Uber), I am glad that pension and mutual funds won't have any exposure to this flaming pile of garbage.
I wonder if the value will be less than 0 soon with all of the liabilities WeWork has!
So the potential downside is still even larger.
Seeing as WeWork needs to continue to pay their long-term leases, 2020 is not going to look good for them thanks to Covid-19.
"Sycamore ignores a fundamental problem with its apparent case of buyer’s remorse: At the time the parties negotiated the Agreement, the world was already well aware of the existence of COVID-19, and the parties agreed that Sycamore would bear the risk of any adverse impacts stemming from such a pandemic. … Sycamore and its representatives may wish that the world did not have to face the pandemic that now confronts us, and may regret that they did not negotiate the allocation of pandemic risk differently in the Transaction Agreement. But having made that commercial choice, Sycamore must now live by it."
A landlord would not go for a rental contract that places the risk of something like a pandemic solely on their own shoulders. Those landlords more often than not financed the property (development, property costs, construction) with long term loans themselves, so they have to repay that with interest in top of what the taxman wants, payroll, etc.
[1] https://en.wikiquote.org/wiki/Everett_Dirksen#Misattributed
MBS has an impressive record of investment failures. It's possible he's part of a secret plot to destabilise the entire region and bring the reign of the House of Saud to an end, but it's just as likely he's a privileged playboy fool who has no idea what he's doing.