WeWork Running Out Of Cash By November; SoftBank, JP Morgan Seek Emergency Financing

Fast-growing startup WeWork claims to be revolutionizing the market for office space but it delayed its share offering after a cool reception to its hefty valuation GETTY IMAGES NORTH AMERICA / SCOTT OLSON

Cash-strapped shared workspace firm WeWork is still set to run out of cash by November and its biggest investors are now scrambling to save it from looming bankruptcy.

Japan's SoftBank Group Corporation and J.P. Morgan Chase are engaged in a heated effort to save WeWork from going under this year by securing emergency funding. WeWork admits to long-term lease obligations amounting to $17.9 billion.

The company revealed a $900 million loss in the first six months of this year, according to CNBC. Only this Tuesday, it said it expects to lay-off at least 2,000 of its employees, or about 13% of its 15,000 staff, as soon as this week. This was a consequence of its failed IPO.

SoftBank owns 29 percent of The We Company, parent firm of WeWork, and has invested $10.7 billion in the business. J.P. Morgan was the lead for WeWork's suspended IPO and is the company's third largest shareholder behind SoftBank and venture capital firm, Benchmark.

The options facing SoftBank and J.P. Morgan include equity from SoftBank and debt from J.P. Morgan. Reports say WeWork is partial to a $5 billion financing package led by J.P. Morgan rather than selling a controlling stake to SoftBank.

J.P. Morgan is said to be trying to convince 100 investors that have signed non-disclosure agreements to participate in the rescue bid, according to sources cited by media.

WeWork's perilous condition stands in marked contrast to its cheery situation last month when it was set to embark on a blockbuster IPO.

WeWork shelved its IPO on Sept. 30 amid investor skepticism about its ability to operate as a profitable business given the "crazy" governance of former CEO Adam Neumann. Neumann was forced to step down as CEO in a shareholder revolt, but was designated the company’s non-executive chairman.

The stalled IPO was to have raised some $20 billion for WeWork. The loss of this massive sum deprives WeWork of the money it needs to pursue its aggressive but expensive growth strategy. This strategy mandates the continuous acquisition of properties around the world to fuel revenue growth. It has to invest heavily in real estate acquisitions to continue growth and makes money over time as tenants pay their rent.

WeWork, which was valued at around $47 billion before the IPO delay, is spending $2.8 billion annually in its pursuit of revenue growth but only has $2.5 billion in cash on hand.