WeWork to go public via BowX SPAC

Equities

WeWork is to go public via a SPAC merger with BowX Acquisition Corp in a deal valuing the company at around $9bn. Shares in BowX (NASDAQ: rose 5% in pre-market trade to above the nominal $10 it listed at. The move will allow WeWork to trade a publicly-listed stock without the kind of scrutiny that kyboshed its abortive 2019 listing. The $9bn is substantially below the roughly $47bn discussed when it filed for its 2019 IPO.

The deal is funded by $483m in cash raised by BowX plus $800m in private investment from investors including Fidelity, BlackRock and Starwood Capital. The deal provides WeWork with about $1.3bn in capital “which will enable the company to fund its growth plans into the future”, it said. Upon completion, the company will have approximately $1.9 billion of cash on the balance sheet and total liquidity of $2.4 billion, including a $550 million senior secured notes facility to be provided by SoftBank Group.

As noted on Tuesday, WeWork announced losses of $3.2bn last year as it pitched for a SPAC listing and $1bn investment. This was a narrowing from $3.5bn burnt in 2019 because it slashed capex to the bone, cutting investment from $2.2bn to $49m. Occupancy fell to 47% from 72%, but the company expects to rebound to 90% next year, which seems optimistic. As does an expected doubling of revenues to $7bn by 2024. We looked at the leasing structure back in 2019 in some depth and it hard to see how WeWork will gain more customers as the effects of the pandemic seem set to linger. In particular, having had experience of the WeWork goldfish bowl cubicles, they are exactly the opposite of what workers will desire as they return to offices – more open plan please.

As noted on Tuesday: Investors who might have got swept up in a WeWork IPO in 2019 will be grateful the listing got pulled. Now they get another chance to get burnt by WeWork’s ambitions. SPACs mean it’s even easier to go public and I’m sure they will find some willing backers for this serviced office provider tech platform. The pandemic has radically transformed the services office landscape from 2019 but WeWork has also been forced to change for other reasons too and is more streamlined than the bloated entity it once was, but it remains overly optimistic both about its prospects and those of the market in which it operates. It’s just all too easy with a SPAC and only underlines the concerns about this craze and the misallocation of capital it is fostering.

Elsewhere, GME stock trades +6% in pre-market after yesterday’s 52% jump. Dow and S&P 500 futs suggest Wall Street will add to Thursday’s gains. European stocks are holding onto early gains and trade broadly positively. Eyes on US bank stocks after the Federal Reserve said Thursday they can accelerate dividend and buybacks after June 30th as long as they pass the latest round of stress tests. US 10s trade up at 1.675% post the 7-year auction yesterday.

In FX EURGBP is the one to watch as the pair takes a fresh look at the key 0.8540 support, with little in the way below this to block a move to an 82 handle.

FX update: Pound blown off course by Frosty Brexit talks, euro tests 200-day line

Forex

Sterling got a smack and the euro pulled back from its highs of the day as Britain’s chief Brexit negotiator confirmed what we already knew; that UK-EU talks are not going very well at all. Whilst a classic last-minute EU fudge is still broadly anticipated by the market, the language from David Frost was not optimistic.

GBPUSD moved sharply off the 1.23 handle, turning lower to test 1.2250 before paring those losses. EURGBP pushed higher and looked towards the May 21st swing high at 0.90, a two-month peak. Undoubtedly sterling becomes increasingly exposed to headline risks around Brexit as we move out of the worst of the Covid-19 pandemic and back into the cut-and-thrust of negotiations.

Speaking to MPs, Frost said the EU’s current mandate handed to chief negotiator Michel Barnier is – in certain key areas –  not likely to produce an agreement, adding that the EU must change its stance in order to reach a deal with the UK. He said that the policy enshrined in the EU’s mandate is not one that can be agreed by the UK. Interesting to see sterling come back a touch as Mr Frost said it’s still the early stages of talks and the UK is still setting out its position – this seems rather optimistic given the timelines previously mentioned.

Whilst we knew that there had been precious little progress in the latest round of talks, the language indicates the two sides are very far apart still. We should however note that adopting this tone is part of the game – the UK’s position remains to take a hard line and, with Mr Cummings still in place, I would think this will remain the case. When questioned, Mr Frost said he reports to the PM, not to Mr Cummings. Of course, we all know where the real power lies.

As previously noted time is running out fast for the talks and we become less sure that either side has the political will and capital to expend on this when dealing with the economic catastrophe of the pandemic. The EU focus is on sorting out a rescue fund that all members can sign up to. Political capital is being spent on that more readily.

Chatter around the Bank of England looking at negative rates is another weight on sterling right now. Indeed it’s a crossroads moment as we deal with a massive increase in government debt, run huge twin deficits and exit the EU whilst in the midst of the worst global recession since the 1930s. There are a lot of downside risks for GBP.

Chart: Pound under pressure: EURGBP moves up to test near-term resistance, GBPUSD drops sharply

Meanwhile, EURUSD also pulled back from its highs, before recovering the 1.10 handle. The euro had earlier moved higher and European equities extended gains after the European Commission laid out plans for an additional €750bn stimulus fund. Ursula von der Leyen set out plans to distribute €500bn in grants – as per the Franco-German proposals – with an additional €250bn in loans on top. She said this would take the EU’s total recovery fund to €2.4 trillion.

A German government spokesman said Berlin was happy the EU had taken up elements of the plans set out last week by Angela Merkel and Emmanuel Macron. Macron urged the EU to move forward quickly. But a Dutch official said budget talks would ‘take time’, indicating a still rather frosty approach to the rescue fund from certain corners – it’s far from a done deal.

Chart: EURUSD analysis

The EC plans took the cross through the 200-day simple moving average around 1.1010 but there was not an immediate follow-through and the Brexit chatter knocked it back before it retook the 200-day line. Bulls need to see a confirmed push above this to unlock the path back to 1.1150, the March swing high. Failure calls for retest of recent swing lows at 1.0880.

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