WeWork is selling control of its China business, the latest sign that the company is abandoning its former rapid growth approach and looking to reduce risk.
A group led by investment firm Trustbridge Partners paid $200 million to increase its stake in WeWork China, which leases and effectively sublets office space in the country, the companies said.
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WeWork will license its name and services for a fee. Parts of the deal resemble a traditional franchise model, and WeWork is giving up operating control. But WeWork will retain a minority stake and a board seat in the China business, a person familiar with the arrangement said.
Since a failed initial public offering and former chief executive Adam Neumann’s ouster last year, the company under CEO Sandeep Mathrani has been working to reduce its massive lease liabilities.
Franchise-type arrangements like the new one in China brings WeWork a smaller share of a location’s revenues, but it also means the company reduces its exposure to expensive long-term leases. That can be a boon during recessions, when revenues fall but landlords still demand their rent. The company already has a similar arrangement in India.
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In its bid to cut costs, the company has shed some locations across the globe, negotiated rent reductions at others and sought to turn some lease deals for buildings into revenue sharing arrangements. WeWork’s business has been hit hard by the pandemic and recession, which have led more companies to reduce real estate expenses and embrace remote work, but the company says sales have bounced back from a spring low.
WeWork opened its first location in Shanghai in 2016. A year later, WeWork formed a joint venture with Chinese investment company Hony Capital, Japan’s SoftBank Group Corp. and other investors to expand in the country. It held a 59% stake in the venture as of last year, public filings show.
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In 2018 WeWork announced the acquisition of the Chinese co-working company Naked Hub and Mr. Neumann said he hoped to grow to one million customers in China by 2021. But the company faced fierce competition from local co-working companies, and ahead of its planned 2019 initial public offering the country had become a drag on earnings. WeWork said it currently has more than 65,000 customers at more than 100 office locations in China.
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Trustbridge’s operating partner Michael Jiang was named acting CEO of WeWork China. The investment firm, which has offices in Shanghai, Hong Kong and Boston, previously held a minority stake in the venture.
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