WeWork is selling control of its Chinese business, the latest sign that the company is abandoning its previous approach to rapid growth and seeking to reduce risk.
A group led by investment firm Trustbridge Partners has paid $ 200 million to increase its stake in WeWork China, which rents out and leases office space in the country, the companies said.
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WeWork will license your name and services for a fee. Parts of the deal look like a traditional franchise model, and WeWork is abandoning operational control. But WeWork will retain a minority stake and a board seat in Chinese business, said someone familiar with the agreement.
Following a failed initial public offering and the removal of former CEO Adam Neumann last year, the company, led by CEO Sandip Matrani, is working to reduce its large lease obligations.
Franchise arrangements like the new one in China bring WeWork a smaller share of location revenue, but it also means the company is reducing its exposure to expensive long-term rents. This can be a boon during recessions when revenues fall, but landlords still demand their rent. The company already has a similar agreement in India.
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In an effort to reduce costs, the company has thrown some locations around the world, negotiated rental reductions to others and tried to turn some building rental deals into revenue-sharing agreements. WeWork̵
WeWork opened its first location in Shanghai in 2016. A year later, WeWork set up a joint venture with Chinese investment company Hony Capital, Japan’s SoftBank Group Corp. and other investors for expansion in the country. Since last year, he held a 59% stake in the venture, public applications show.
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In 2018, WeWork announced the acquisition of the Chinese joint venture Naked Hub, and Mr. Neumann said he hopes to grow to one million customers in China by 2021. But the company faces stiff competition from local cooperatives ahead of schedule. for 2019, the country’s initial public offering has turned into a delay in profits. WeWork said it currently has more than 65,000 customers in more than 100 offices in China.
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Trustbridge’s operational partner Michael Jiang has been appointed acting CEO of WeWork China. The investment firm, which has offices in Shanghai, Hong Kong and Boston, previously held a minority stake in the company.
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