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T. Rowe Price calls WeWork a ‘terrible investment’ (TROW)


Adam Neumann, co-founder and chief executive officer of WeWork, speaks during a signing ceremony at WeWork Weihai Road flagship on April 12, 2018 in Shanghai, China. World's leading co-working space company WeWork will acquire China-based rival naked Hub for 400 million U.S. dollars.

In an unusually frank letter, fund managers at T. Rowe Price derided WeWork as a “terrible investment.”
T. Rowe Price led WeWork’s Series D financing round in 2014, which valued the company at $4.65 billion.
The fund managers said they invested with the understanding that WeWork would curb its losses and growth, but that didn’t happen.
WeWork failed to go public last year and nearly went bankrupt instead, sending its valuation plummeting in the process.
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When it comes to investing in WeWork, you could say that T. Rowe Price’s investment team has some regrets.

In their letter to shareholders in the annual report of the firm’s Mid-Cap Growth Portfolio, Brian W.H. Berghuis, chairman of the fund’s investment advisory committee, and John F. Wakeman, the portfolio’s executive vice president, said that the portfolios’ stake in the commercial real-estate startup had brought them “outsized headaches and disappointments.” The investment, which the portfolio made in 2014, was done with the understanding that WeWork would moderate its rapid growth and improve its bottom line, they said. Though the company took steps in that direction soon after T. Rowe Price’s investment, it soon went back to its big spending ways, they said.

WeWork’s profligacy eventually caught up with it. Its attempt at a public offering last summer collapsed in the face of investor concerns about its massive losses. After its IPO failed, its valuation collapsed from $47 billion to less than $8 billion, and it nearly went bankrupt before SoftBank bailed it out. The end result of all that was that T. Rowe’s remaining stake in the company is now worth much less than what it once was, Berghuis and Wakeman said in the letter.

“While it’s possible that WeWork’s new management will improve operations somewhat, we are ready to declare this a terrible investment,” they said.

The letter was an unusually frank assessment from a high-profile investor. T. Rowe Price led WeWork’s Series D Round, in which the company raised $355 million at a valuation of $4.65 billion, according to PitchBook.

Berghuis, Wakeman, and their team have had misgivings about their WeWork investment for years now, particularly with regards to the company’s corporate governance and the trustworthiness of its former CEO, Adam Neumann. Neumann at one point had iron-clad control over the company with 20 votes for each share he held and was the target of criticism for numerous personal transactions he engaged in with the company.

Adam Neumann promised WeWork would be profitable

The T. Rowe team was particularly incensed about the company’s ever growing losses.

Neumann “promised profitability was just over the horizon,” they said in the letter. “We did not take him at his word, and we communicated to WeWork’s management and board our displeasure with its eroding corporate governance.”

T. Rowe sold off a total of 16% of its stake in WeWork — recouping about half of its initial investment — in private transactions in 2017 and 2019, they said. They planned to sell off their remaining stake last year, but WeWork’s management, which had …read more

Source:: Business Insider

      

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