WeWork, which offers flexible office space in cities around the world, announced today that it will merge with BowX Acquistion. WeWork has 851 locations in 152 cities, totaling more than one million workstations.

Following the merger, which is expected to close in a few months, WeWork will receive $1.3 billion in cash and have an enterprise value of $9 billion.

The merger will enable New York based WeWork to list as a public company since BowX trades on the Nasdaq exchange. Based in Menlo Park, California, BowX is a special purpose acquisition vehicle, or shell company, set up Vivek Ranadive, a software entrepreneur and investor.

The financial strategy of WeWork is to charge clients, taking up its short-term office space higher rents than what it pays on its long-term leases to a building’s owner. This markup on rents, as well as markups on furniture rentals, utility bills, cleaning and other services, is the profit a business like WeWork would earn - assuming the overall occupancy was high.  

“Every single company in this space has gone broke,” Sam Zell told CNBC in 2019. WeWork’s sub-leasing of office space, which they lease from building owners, has been tried since 1956, he added. During an economic downturn, many tenants do not renew their short-term rentals while the sub-leasing company, which has a long-term lease, must continue to pay rent for the entirety of its lease to a building’s owners.

In January, the U.S. operations of Knotel, a WeWork competitor, filed for bankruptcy. Knotel was founded by Amol Sarva.

In 2007, at the peak of an earlier real-estate cycle, Zell sold Equity Office Properties, a company he founded and which owned office buildings, for $39 billion. His net worth is estimated to be $4.8 billion, according to Forbes.

Ranadive, Fidelity, BlackRock and other investors in the WeWork BowX planned merger apparently disagree with Zell’s assessment. “With COVID accelerating the adoption of flexible workspace around the globe, WeWork is uniquely positioned to meet rising demand,” noted Deven Parekh, Managing Director at Insight Partners, an investor in the deal.

WeWork was founded in 2010 by Adam Neumann, with its first location in New York City. During its initial years, most clients were freelancers, accountants, lawyers, designers as well as unemployed professionals who sought to rent office space on a monthly basis, instead of being locked into five or ten year rental contracts with building owners.

Neumann shared tequila shots with employees and hired RunDMC and other big-name musicians for company events. In 2019, Neumann was sacked by majority owner Softbank after his failed attempt to list WeWork as a public company. Softbank, which reportedly owns 80%, once valued its investment in WeWork at $47 billion. Softbank is run by Masayoshi Son, a Japanese with a net worth of $42 billion, according to Forbes.

In February 2020, Son installed Sandeep Mathrani as chief executive of WeWork. WeWork slashed sales and administrative expenses by $1.1 billion and trimmed building operating expenses by $400 million. It also exited non-core ventures and laid-off two thirds of its employees.  

Microsoft, Google, Amazon, Tesla and other large companies now make up more than 50% of WeWork’s memberships, up from just 10% in 2015. Only 10% of WeWork’s members have month-to-month commitments, while more than 50% have commitments longer than 12 months; the average term is over 15 months. 

Previously, Mathrani was CEO of Brookfield Properties’ retail group. In 2018, Brookfield paid $9.3 billion to purchase GGP, a New York Stock Exchange listed U.S. mall owner, which Mathrani ran for eight years.

Prior to GGP, Mathrani was at Vornado Realty Trust, where he oversaw the firm’s U.S. retail real estate division and operations in India comprised principally of office properties. Before that, he spent nearly a decade at Forest City Ratner, where he started and grew retail properties in New York City.

Mathrani holds a Master of Engineering, Master of Management Science and Bachelor of Engineering from Stevens Institute of Technology, New Jersey.

BowX chairman Vivek Ranadivé, 62-years-old, has a net worth of $700 million, according to news reports. Since 2016, he is CEO of Bow Capital Management, an investment company he founded. For the past eight years, he is Chairman and CEO of the Sacramento Kings, a National Basketball Association team based in Sacramento, California.

Earlier in 1986, he founded Teknekron Software Systems which developed software for financial trading floors. In 1994, he sold Teknekron to Reuters. He then founded TIBCO, a data software company, which went public in 1999. In 2014, TIBCO was sold to Vista Equity Partners for $4.3 billion.

Ranadivé first became involved in NBA basketball as Vice Chairman of the Golden State Warriors, now based in San Francisco. Born in Mumbai, he earned a B.S. and M.A. degree in Electrical Engineering from the Massachusetts Institute of Technology and an MBA from Harvard Business School. .

In 2020, Ranadive added Vijay Advani to the board of BowX. Advani is Executive Chairman of Nuveen, the asset manager of TIAA-CREF. He was previously CEO of Nuveen from 2017 to 2020.

Earlier, from 1995 to 2016, Advani was Co-President of Franklin Templeton Investments, where he was responsible for the firm’s investment management, trading and global retail and institutional sales channels. Prior to joining Franklin Templeton, he was at the World Bank from 1984 to 1995,

Advani holds a bachelor’s degree from the University of Mumbai and an MBA from the University of Massachusetts Amherst.

In 2020, WeWork lost $3.2 billion on $3.2 billion in revenues. Due to rising revenues and cost cuts, CEO Sandeep Mathrani told CNBC today, WeWork will turn profitable this year.  

While WeWork is primed to achieve profitability in the short-term, says Vivek Ranadive of BowX, the two companies are a perfect fit because of “the added long-term opportunity for growth and innovation.”

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