By Akiko Matsuda
WeWork on Thursday won court approval for a bankruptcy restructuring that will let it make a new run at the co-working business as a smaller, private company under new ownership.
Judge John Sherwood with the U.S. Bankruptcy Court in Newark, N.J., approved a restructuring plan for WeWork, giving a second chance to the flex-office business once valued at $47 billion before it filed chapter 11 last year.
WeWork will leave bankruptcy debt-free and with a lower cost structure after it renegotiated many of its long-term leases with its landlords, Chief Executive David Tolley said in an interview.
"Those two huge changes have put us in a position for profitability and long-term growth," said Tolley, who has been leading the company since May 2023.
After a meteoric rise to unicorn status and a failed IPO attempt in 2019, WeWork went public in 2021, only to be hammered by a collapsing market for office space. The bankruptcy plan will take WeWork private again under the control of real-estate software firm Yardi Systems, which will hold a 60% stake in the company in exchange for contributing $450 million in financing along with other investors. That financing package will convert to equity under the chapter 11 plan, which values WeWork at around $562 million.
Tolley said he is ready and willing to continue leading the company, which projects that it will turn its net income positive in 2025 for the first time since its founding in 2010.
Adam Neumann, WeWork's former CEO and co-founder, disputed those projections earlier this week as he ended his bid to regain control of the company. Neumann said that WeWork "looks to be emerging from bankruptcy with a plan that appears unrealistic and unlikely to succeed."
Neumann's bid for the company failed to gain traction among lenders that included his onetime backer, technology investor SoftBank Group, as well as asset managers Brigade Capital Management, King Street Capital Management and BlackRock Financial Management.
WeWork launched its global lease restructuring initiative in September, alerting its hundreds of landlords that it was time to "permanently fix our inflexible and high-cost lease portfolio to achieve the sustainable operating model." In chapter 11, the company gained the power to reject unfavorable contacts, including leases, giving it more leverage to seek concessions from landlords.
As of April, WeWork had amended the leases at 170 locations and exited more than 160, resulting in more than $800 million in annual rent savings, the company said in court filings. The company's global office portfolio after bankruptcy is expected to have 337 locations, including 178 across 38 cities in the U.S. and Canada, WeWork said. When it filed for bankruptcy, WeWork had roughly 500 office locations globally.
WeWork's push to lower rent met resistance from many landlords who had also been dealing with an unprecedented downturn in the office real-estate market. A critical mass of landlords ultimately agreed to support WeWork's new chapter.
Tolley said office space is at a cyclical low, and while it's unknown how the current market will repair itself, it will happen.
"It's the nature of the economic cycle and the nature of business," he said.
Write to Akiko Matsuda at akiko.matsuda@wsj.com
(END) Dow Jones Newswires
May 30, 2024 10:38 ET (14:38 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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