WeWork said on Thursday it is laying off around 2,400 employees globally, as the office-sharing company seeks to drastically cut costs and stabilise its business after it transformed from a Wall Street darling into a pariah in a matter of weeks.
The long-anticipated layoffs are the biggest move yet by Japanese technology investment company SoftBank Group Corp (9984.T), which is providing a $9.5-billion lifeline and will soon own about 80 percent of its shares, to make sure WeWork refocuses on its core business and on trying to make money.
Under co-founder and ex-CEO Adam Neumann, WeWork had become bloated, was diversifying into all kinds of areas - including setting up a school and running apartment buildings - and was expanding at a breakneck speed without any clear route to profitability.
"As part of our renewed focus on the core WeWork business, and as we have previously shared with employees, the company is making necessary layoffs to create a more efficient organization," a company spokeswoman said in a statement.
"This workforce reduction affects approximately 2,400 employees globally, who will receive severance, continued benefits, and other forms of assistance to aid in their career transition," the New York-based company added.
The company itself had 12,500 employees on June 30, and there are others who work for affiliates.
The layoffs began weeks ago in regions around the world and continued this week in the United States, WeWork said.
At least one employee was notified they were laid off by a manager who told them to expect an email on Thursday afternoon. The second floor of WeWork's headquarters in New York has been cordoned off for human resources procedures, the ex-employee said.
The layoffs come even as WeWork considers a change in CEO to replace Artie Minson and Sebastian Gunningham, who themselves have only been in place since September.
Ultimate control of the company now rests with SoftBank and WeWork's new Executive Chairman Marcelo Claure. Claure had told employees in an email on Monday that job-cutting will start "in earnest" this week in the United States, saying WeWork was "going to eliminate and scale back certain functions and responsibilities."
The job cuts are the latest sign of how much WeWork's prospects have deteriorated - from being worth $47 billion in January and planning in September an initial public offering (IPO), to a company that was facing a cash crunch and fighting for survival.
It shelved its plans for the IPO on Sept. 30 because investors were wary of its growing losses, its business model and its corporate governance. WeWork co-founder Adam Neumann resigned as CEO the previous week.
The departments affected by the layoffs include its architecture department, which has helped curate WeWork's distinctive shared office spaces known for their modern design, according to one person familiar with the matter.
In the aftermath of the announcement, WeWork's junk bond due in 2025 fell 1.125 cents on the dollar, sending its yield back to near a record high above 16%.
Its spread over Treasury bonds, a measure of the additional premium investors demand for owning its risky debt rather than safer government securities, widened by 0.36 percentage point to 14.46 points. Before it launched its failed IPO effort, the bond's spread was less than half that.
WeWork is still facing a litany of issues, the latest being an investigation by the New York State Attorney General.
The company's losses are continuing to mount, swelling to $1.25 billion in the third quarter, and it is burning through cash quickly as it has committed to a big expansion in the number of sites and has already signed expensive long-term leases to move into many buildings.
As part of the restructuring, it is closing or selling peripheral businesses that it set up, including its private elementary school after the current school year.
Employees were told they will be called down to the second floor at 2 p.m. eastern time to receive HR information and sign papers. To pass the time, some WeWork staff in New York drank Fireball whiskey.
A WeWork employee, speaking on the condition of anonymity, said on Wednesday that some employees at its residential living business, WeLive, had been told Thursday would be their last day.
Some WeWork employees have banded together into the WeWorkers Coalition, which is calling for severance pay and compensation for lost equity for laid off employees.
"In the immediate term, we want those being laid off to be provided fair and reasonable separation terms commensurate with their contributions, including severance pay, continuation of company-paid health insurance and compensation for lost equity," said Alan Friedman, a WeWork software engineer who helped start the WeWorkers Coalition two weeks ago.
Friedman described the long wait for the layoffs announcement, which has been widely discussed in the media for weeks, to be "draining" for staff morale.