Adam Neumann (twitter)
WeWork, the office space sharing company founded by controversial Israeli entrepreneur Adam Neumann, announced a reverse stock split. WeWork will now turn every 40 shares outstanding into just one new share. Many observers, however, see this as a desperate move by the firm which only recently stated that it was in danger of going bankrupt.
The reverse stock split will be effective at 4:01 p.m., Eastern Time, on September 1, 2023. The Company’s Class A Common Stock will begin trading on a post-split basis at the market open on September 5, 2023.
So, how would such a move help the embattled WeWork that was once valued at $47 billion? Well, the company made the move because its stock has fallen to just $0.14 on the NYSE – Down 90% year-to-date – and the NYSE has a minimum $1 per share price policy.
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A reverse stock split is a corporate action in which a company reduces the number of outstanding shares of its stock by consolidating them into fewer shares. This results in an increase in the price per share, but does not change the total value of the company’s equity.
For example, if a company declares a 1-for-10 reverse stock split, every 10 shares of the company’s stock that an investor owns will be converted into 1 share. So, if an investor had 100 shares before the reverse stock split, they would have 10 shares after the split. The price per share would also increase by 10x, from $1 to $10.
This is a move generally made by firms whose stock prices dropped considerably. The hope is that the laws of supply and demand will kick in. Fewer overall shares available and at a higher price will hopefully make it less like that the shares will be sold. But sometimes this backfires as investors see the reverse stock split as a desperate measure and seek to dump the shares they hold in the respective company.
So, will this happen to WeWork? Well, it is too early to tell what the result of this maneuver will be, but things are not looking so good for the company these days. And the investors have two weeks to dump shares before the reverse split takes effect.
WeWork has suffered from numerous problems in recent years, especially due to the Covid crisis. Since everyone had to work from home for the duration, no one was renting shared office spaces.
But WeWork’s real problems began in 2019 when founder Adam Neumann was forced out of the company which he founded in 2010. After a meteoric rise, the entrepreneur was brought down due to allegations of serious drug use and sexual improprieties. WeWork was forced to deal with sexual harassment suits. It delayed its planned IPO and laid off many workers.
