Ackman Warns SoftBank: You May Lose It All
Ackman Predicts SoftBank May End Up Writing Off Its Entire Investment In WeWork
Notable hedge fund manager "Bill Ackman sees a risk of Softbank Group (ADR) (SFTBY US) having to write off all of its investment in WeWork, he told the Robin Hood investor conference in New York on Tuesday," as reported by Financial Times.
“As someone who has put good money after bad, I think this looks like putting good money after bad, and SoftBank should have walked away,” Ackman added.
Of course, it's much easier for Ackman to say this now that "everybody" knows WeWork is out of cash with a failed business model and evaporated prospects. I projected this outcome in mid-Sept with Gravity Works As WeWork Doesn't; Now Plan B in mid-September.
I also have estimated in WeWork's equity value at zero in bankruptcy, with bonds impaired, and worth less than 1x '19 estimated revenue ($3.3 billion) as a going concern which, as I have noted, gave Softbank few options--all ugly ( Softbank May Blink First (WeWork Bondholders Hope) and The Tide Is Out and WeWork Bondholders Are Naked).
Softbank’s investors have shown they really hate this transaction which will result in years of expensive financial support to keep WeWork afloat as Softbank throws billions more into what could be its worst investment ever (WeWork Bondholders Brace for Softbank’s Rescue Plan--In Silence).
So in this instance, Bill Ackman and I may agree.
We don't always; e.g. I rated Valeant Pharmaceuticals (formerly VRX; now Bausch Health Companies (BHC US)) as "Sell" on 5/1/14 (peak on bonds) but Bill remained its biggest fan until it crashed in October 2016 and he lost $4 billion.
Meanwhile, Fitch tweaked its credit quality ratings on WeWork, removing its “Negative Outlook” on the company overall but putting WeWork bonds on its “Negative Watch” since they are about to be buried under billions of new debt as part of Softbank’s rescue plan (see my report last night WeWork Bondholders Brace for Softbank’s Rescue Plan--In Silence and previous reports). Fitch echoed my concerns that WeWork’s liquidity remains strained even with Softbank’s support with “minimum headroom for execution challenges or a broader slowdown.”
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