# Adam Neumann Buying Back WeWork?

An episode of [Patrick Boyle On Finance](https://invisiblenetwork.ai/podcast/1547740313), 10 Feb 2024, 15 min.

Audio: https://anchor.fm/s/fc0914e0/podcast/play/92761802/https%3A%2F%2Fd3ctxlq1ktw2nl.cloudfront.net%2Fstaging%2F2024-9-8%2F387759561-44100-1-e141db0faaa074c5.mp3

Send us a textAdam Neumann has been trying to buy WeWork - the company he cofounded out of bankruptcy — allegedly with the help of the hedge fund manager Dan Loeb of Third Point.Neumann’s new real estate company "Flow" has sent a letter to WeWork requesting that they consider its takeover approach. Flow has already raised $350 million from the venture capital firm Andreessen Horowitz, disclosed in the letter that Loeb’s Third Point would help finance a transaction. The Financial Times c...

## Transcript

[0:00] Hello and welcome you are listening to Patrick Boyle on
[0:03] Finance, a podcast exploring ideas from quantitative finance,
[0:08] examining events occurring in markets right now and financial
[0:11] history to see what lessons can be taken away, including
[0:15] interviews with some of the most interesting people in the world
[0:18] of finance. To learn more about the podcast,
[0:20] visit on finance.org. Some of my favorite businesses,
[0:30] as long term channel viewers are aware, are fake technology
[0:33] companies. These are startups, usually out
[0:36] of California, but in recent years they've sprouted all over
[0:39] the world, where a charismatic founder takes a humdrum
[0:43] business, layers on a veneer of technology and pitches it to
[0:48] investors at an astronomical price, claiming that it will
[0:51] change the world. Now, when I say that these are
[0:54] my favorite businesses, I don't mean favourites to invest in our
[0:58] own. You'd never want to do that.
[1:00] But they are my favourites to read about.
[1:03] And without these businesses, financial news would be really
[1:06] boring. And I read financial news all
[1:09] day long and I don't want to be bored.
[1:11] To maximize the entertainment value of a fake tech firm, the
[1:16] core business needs to be as dull as possible.
[1:20] Something like a window cleaning business, a sawmill or a well, a
[1:24] well would make a great fake tech business.
[1:26] The water drawn from it could be possibly recorded on the
[1:30] blockchain. There could be some sort of
[1:32] social angle to it. Not not actually social.
[1:35] We don't need people actually meeting at a well that's that's
[1:38] out of date. It needs to be the kind of
[1:41] social where people only interact using their phones or
[1:45] with some sort of a headset, and they should only discuss how
[1:48] wealthy the well will eventually make them on the app.
[1:52] It's 2024 and that's what people want now.
[1:56] Key to a fake tech business is a shameless and charismatic CEO
[2:01] who knows how to pump the stock price up when raising grounds of
[2:05] capital from VCs. The CEO needs to be irreverent,
[2:09] possibly have a distinctive hairstyle, and most importantly,
[2:13] a modern day hippie druggie vibe.
[2:16] VCs required that these CEOs at least appear to believe their
[2:21] own pitch when they're claiming that the new product has an
[2:24] infinite total addressable market or Tam.
[2:28] And you don't need a guy pitching that his metaverse
[2:31] based blockchain well will bring water to the deserts and work on
[2:36] Mars if he doesn't seem slightly drug addled.
[2:39] As a serious, sober looking CEO might lead investors and
[2:43] journalists to ask difficult questions that can't be answered
[2:47] in a dreamy drug addled manner by a guy with a distinctive
[2:51] hairstyle who claims to see the future.
[2:54] Now, our CEO can't be too wacky. If he's falling off the stage
[2:58] during his Ted talk, that'll raise too many difficult
[3:01] questions. There's a delicate balance to be
[3:04] maintained here. There are a lot of good examples
[3:07] of this type of company. In 2017, Lift announced Lift
[3:12] Shuttle, where passengers share a vehicle that follows a pre
[3:16] designated route. It involves walking to and from
[3:20] one of the fixed stops. It's convenient, it's
[3:23] affordable, and it is, of course, a boss.
[3:26] Later that year, Uber actually launched a service in Seattle
[3:30] which allowed riders to save money by waiting for their Uber
[3:34] at prearranged stops, share it with strangers, and get dropped
[3:39] off at any point along a predetermined route.
[3:43] That was a bus, too. Not to be outdone, Elon Musk
[3:47] invented the bus one year later, but at least he added a sci-fi
[3:51] layer of complexity to his version.
[3:54] There are other examples. Bodega, a box that can be set up
[3:58] in urban locations that's unlocked using an app which
[4:02] sells non perishable convenience store type goods.
[4:06] That's a vending machine. Juicero Wi-Fi enabled press that
[4:11] can squeeze juice out of fruits and vegetables.
[4:14] It cost $400.00, required a subscription and replaces your
[4:20] hands. And let's not forget Peloton gym
[4:23] equipment with a built in iPad and a monthly subscription that
[4:28] was more expensive than the cost of an actual gym membership.
[4:32] You can still buy one of those. This all leads me to the real
[4:36] master of the fake technology business, Adam Newman, the Co
[4:40] founder of Wework, a shared office space with a beer tap and
[4:44] an app that I'm reliably told didn't work, he described we
[4:48] work as the world's first physical social network and for
[4:52] quite some time managed to convince investors that it was
[4:55] worth $47 billion because technology.
[5:00] You'll be glad to know that Adam is back in the news claiming
[5:03] that he wants to buy back the now bankrupt business.
[5:07] When we last talked about Adam on this channel, we work was on
[5:11] the verge of bankruptcy. Adam had walked away with $1.7
[5:15] billion and he had managed to talk the venture capital firm
[5:19] Andreessen Horowitz into giving him $350 million for shares in
[5:24] his new company, Flow, which plan to transform the
[5:28] residential real estate rental market in an unspecified manner.
[5:33] Andreessen Horowitz's $350 million investment in Newman's
[5:38] new business, Flow was allegedly the largest individual check
[5:42] that they had ever written in around the funding to a company,
[5:46] and the investment valued Flow at more than $1 billion before
[5:51] it even opened its doors. Flow claimed on its website that
[5:55] they would address some aspects of the US housing shortage
[6:00] through technology. Now that's fairly cryptic, but
[6:03] maybe it'll be an apartment that you can rent but with a
[6:07] smartphone enabled beer tap? I don't know, as interesting as
[6:12] Flow sounds. Earlier this week, Dealbook
[6:15] reported that Adam Newman, through Flow, has been trying to
[6:19] buy the now bankrupt We Work, allegedly with the help of Dan
[6:23] Loeb's hedge fund Third Point. The Financial Times, of course,
[6:27] contacted Third Point to verify their involvement in the deal,
[6:31] and we're told that the fund had only held preliminary
[6:35] conversations with Flo and Adam Newman about his ideas for we
[6:40] work. They went on to say that they've
[6:42] made no commitment to participate in any transaction,
[6:47] so who knows what any of this means, But at least Adam Newman
[6:50] is back in the news to entertain us.
[6:53] That's the most important part. Deal Book included in their
[6:57] article a link to a letter, which comes from Alex Spiro, who
[7:02] long term viewers of this channel will know as Jay-Z and
[7:06] Megan D Stallion's lawyer. Spiro has also represented non
[7:11] rappers like Elon Musk in his case against the Thailand cave
[7:15] rescue diver. I'm fairly sure that I've
[7:18] already covered how Spiro and the Rapper's Killer Mike, Meek
[7:22] Mill, Yo Gotti, and Chance the Rapper sent a brief to the US
[7:26] Supreme Court detailing the ways that rap music is stigmatized
[7:30] and stereotyped by the legal system.
[7:33] That's the the kind of stuff that I cover on this channel.
[7:37] Spiro is highly respected by rappers and technology
[7:41] executives, and thus is probably the perfect lawyer for Adam
[7:45] Newman. Last year, Newman attempted to
[7:48] explain what Flow does to the Financial Times.
[7:52] He explained that a young cohort he once named the We Generation
[7:57] are now almost the Our generation because they need to
[8:01] rent. Obviously, Adam doesn't need to
[8:04] rent. He walked away from his failed
[8:05] business with $1.7 billion and a plane full of weed, but that's
[8:10] off topic. He explained that as a solution
[8:14] to the housing affordability problem, he had spent hundreds
[8:17] of millions of dollars buying rental apartment buildings in
[8:21] cities whose popularity among that demographic had grown.
[8:26] He said it felt like there were better ways to operate the
[8:28] buildings, and it felt like, frankly, there's more room for
[8:33] more community. Now I can't be sure, but I think
[8:36] by more community he means he'll pack more of them into each
[8:39] apartment, which sounds nice. Anyhow, based on this letter
[8:45] from Alex Spiro, it sounds like the plan for Flow has changed as
[8:49] the letter states that since October 2022.
[8:53] So for quite some time Newman has been working to arrange up
[8:57] to a billion dollars in financing to stabilize we work,
[9:01] and it would appear that the new management have been mostly
[9:05] ignoring him, which makes him sad.
[9:08] Note that the letter says arrange financing, not finance.
[9:12] With the $1.7 billion he walked away from the business with,
[9:16] only a fool would put his own money into a wealth bonfire like
[9:20] we work. I mean, let's be real.
[9:22] It's short term office leasing. The tech stuff is just made-up
[9:26] to impress Marc Andreessen now. Wework was not the first
[9:30] business founded by Adam Newman. His first business was Crawlers,
[9:34] a line of unusually ugly baby clothes with sewn in knee pads,
[9:38] pitched to parents who worried that crawling babies are in
[9:42] constant pain and they need special padded clothes to
[9:46] alleviate that pain. Crawlers is, to date, Newman's
[9:50] most successful business. I don't mean that it made money.
[9:54] Of course it didn't make money. The clothes were horrible, but
[9:57] it did lose billions less than his most famous startup.
[10:01] We work, and that's good, PT Barnum famously said.
[10:06] There's a sucker born every minute.
[10:08] But Adam Newman didn't need one of these newborn suckers.
[10:12] They probably don't have any money.
[10:14] He had Masayoshi son of SoftBank, who had raised $100
[10:18] billion in capital and was willing to give a big chunk of
[10:22] it to Adam after spending less than 30 minutes talking to him.
[10:27] Wework's valuation peaked at $47 billion, pumped up by funding
[10:32] from SoftBank, who possibly love a fake tech business more than
[10:36] even Kathy Wood does. It then tanked in 2019 as the
[10:41] heavy spending and Newman's crazy behavior sank its plans to
[10:45] go public. Note that COVID and working from
[10:49] home during the pandemic were not part of the problem.
[10:52] The business was on the rocks long before that, as investors
[10:56] who had not travelled on Adam's private jet noticed that we work
[11:00] was just renting office space and was not an actual tech
[11:04] business, thus not worth anything close to $47 billion.
[11:09] Adam managed to lose $14 billion for his biggest investor,
[11:14] SoftBank. Well, I don't know, SoftBank
[11:17] actually lost their own money by valuing some office buildings
[11:21] filled with IKEA furniture as if it was a software business.
[11:24] But actually, SoftBank didn't really lose their own money
[11:28] either. Most of the money came from the
[11:30] Saudi Arabia sovereign wealth fund.
[11:33] And if the Saudi Arabian sovereign wealth fund hadn't
[11:36] blown the money on SoftBank, they would have blown it on
[11:39] Credit Suisse or NEON, the 110 mile long city that they're
[11:44] building, which guarantees that inhabitants are always the
[11:47] maximum distance from wherever they need to go.
[11:51] At any point in time, one way or another, this money was going to
[11:55] be vaporized. So we only have to feel so bad
[11:58] now. Journalists at the Financial
[12:00] Times this week spoke to a number of the creditors,
[12:04] advisors and other people involved in We Work bankruptcy
[12:08] who refused to comment on the record given that they are in
[12:12] the midst of legal proceedings. But off the record, they
[12:16] expressed doubts that Newman could regain control of We Work,
[12:20] which is going through bankruptcy and is still plagued
[12:23] with problems. Tracing back to his time in
[12:25] charge, they told the FT that they had no advanced
[12:29] conversations with Newman and that the firm was proceeding
[12:33] with its previous plan to hand over a restructured company to
[12:37] creditors by wiping away nearly all of its $4.2 billion of debt
[12:42] in bankruptcy. The letter from Newman's lawyer
[12:46] proposes $200 million of financing, which is not nearly
[12:51] enough to solve Weworks actual problems.
[12:54] But this debt would come in senior to the existing debt at
[12:58] We Work and would likely affect who was in control of the
[13:01] company once it emerges from bankruptcy.
[13:05] Amusingly, the letter wraps up by stating that Newman's
[13:08] management expertise would likely add significant value to
[13:12] the firm. While of course it's Newman's
[13:15] management expertise that wiped out billions of dollars of
[13:18] investors funds landing, We work in bankruptcy.
[13:23] Matt Levine at Bloomberg argues that buying We work out of
[13:26] bankruptcy would likely require paying off at least some of the
[13:30] $4.2 billion in debt. The current bankruptcy does not
[13:35] involve paying off any of the debt.
[13:37] Around $3.7 billion at 1st and 2nd lien debt would swap their
[13:43] debt into equity and own the surviving company, while the
[13:47] unsecured lenders would get nothing.
[13:49] Under the current plan, Levine argues that buying the company
[13:54] out of bankruptcy might require paying off the most senior debt
[13:58] in full, the $3.7 billion, or giving the lender some mix of
[14:03] cash and equity in the surviving company.
[14:07] The Deal Book article argues that the company could be sold
[14:10] for as little as $500 million, which is pocket change for
[14:15] Newman. But let's be serious, he's not
[14:17] going to put his own money into this.
[14:20] It would be difficult at this point to spin the value of the
[14:23] company up again now that people realize that it's just office
[14:27] rentals and not a tech business. Thanks for tuning into this
[14:31] week's podcast. If you enjoyed it, please
[14:33] forward a link to a friend so that the podcast can grow.
[14:37] Have a great day and talk to you again soon.
[14:40] Bye. If you enjoyed this episode, be
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[14:50] If you enjoyed this content, you can find more like it on
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[15:01] Bye.

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