After WeWork debacle, IPO market slams brakes on unprofitable companies

WeWork’s IPO was postponed amid declining market confidence. (Reuters)
Updated 29 September 2019

After WeWork debacle, IPO market slams brakes on unprofitable companies

  • SmileDirectClub is the worst performer among $1 billion-plus IPO deals, with its stock down 43 percent since its debut earlier this month
  • The best performer in that group is social media company Pinterest Inc, whose shares are up 39 percent since their April debut

NEW YORK: Companies making their debut on the US stock market are getting a rough welcome, especially if they are losing money, casting a shadow over the calendar for initial public offerings for the rest of the year.

The surprise postponement of the WeWork IPO has underscored how confidence is eroding in the market both for companies looking to raise capital and investors.

A more discerning market for initial public offerings continued to punish Peloton Interactive Inc. on Friday, a day after it began trading. Shares of the fitness startup closed down 2 percent at $25.24 and are now off 13 percent from their IPO price. The company is now trading 15 percent below its Wednesday IPO price.

Before trading began on Friday, five of this year’s eight deals of $1 billion or more were trading below their IPO price, according to research firm Dealogic. On a broader scale, only about 27 percent of the 112 deals of $100 million or more were trading below their IPO price.

Venture capital firms and other backers of many of these high profile “unicorns” — companies valued at $1 billion or more in the private market — had a higher tolerance for the path to
profitability, but eventually they wanted to monetize their stakes.

In the past, public market investors have typically expected companies to become profitable within 18 months or so of an IPO. This timeline has been relaxed with money managers eager to add businesses with fast-growing revenue to their portfolios.

Recent deals, however, suggest an uncertain economic outlook is pushing investors to be more selective about which loss-making companies they are willing to back.

Peloton reported rapid top-line growth of 110 percent during the fiscal year that ended June 30. But the company also showed negative operating leverage, with operating expenses surging 147 percent over the prior year.

Loss-making teeth-alignment company SmileDirectClub this month became the first US IPO in three years to price above its target range and close down on its first trading day, according to research firm Renaissance Capital.

SmileDirectClub is the worst performer among $1 billion-plus IPO deals, with its stock down 43 percent since its debut earlier this month, according to Dealogic.

The best performer in that group is social media company Pinterest Inc, whose shares are up 39 percent since their April debut. Revenue at Pinterest surged 58 percent to $463.2 million in the first half of 2019. Net cash used in operations during that period narrowed to $16 million from a year-ago $29 million, according to Pinterest’s financial statements.

Shares of Beyond Meat Inc, which came to market in May in a small $277 million deal, have surged more than 500 percent since the IPO. The company’s operating expenses more than doubled during the first half of the year, but that was outpaced by top-line growth that more than tripled.

Meanwhile, the average IPO return in 2019 was now about 6 percent at the end of trading Friday, down from more than 30 percent at the end of June and more than 18 percent about two weeks ago.

In the US, much of the attention in the third quarter has focused on a deal that failed to come to fruition — the planned IPO of WeWork parent We Company.

The company had aimed to launch its IPO earlier in September, then postponed plans to list until later in 2019, before replacing its chief executive officer and saying it was reviewing its timetable to go public.

Endeavor Group Holdings, an entertainment and talent agency company backed by Hollywood power broker Ari Emanuel with a track record of losses, made a last-minute decision to abandon its IPO due to the tough market conditions.

Home rental giant Airbnb has said it plans to list its shares in 2020 but provided no details and is widely expected to do a direct listing to go public. In a direct listing no new shares are created and investors can sell their stakes while saving millions of dollars in underwriting fees.

This month the company said it raked in more than $1 billion in second-quarter revenue. 


Case against Ghosn excuse to get him out of Nissan, claim lawyers

Updated 13 November 2019

Case against Ghosn excuse to get him out of Nissan, claim lawyers

  • The former motor giant chief’s legal team has alleged that both his arrest and the prosecution efforts have been illegal

TOKYO: The drama surrounding the arrest of Carlos Ghosn, former boss of motor giants Nissan and Renault, has yet to reach its climax. Yet the plot continues to thicken with each new development.

On Monday, Ghosn’s defense lawyers unveiled court submissions highlighting the circumstances in which the 65-year-old executive was arrested and subsequently held in detention.

“We believe that Mr. Carlos Ghosn is innocent. We believe that the arrest and the prosecution efforts thus far are illegal and therefore Mr. Ghosn should be immediately released,” the head of his defense team, Junichiro Hironaka, said during a press conference at the Foreign Correspondents Club of Japan in Tokyo on Monday.

Hironaka claimed that Nissan wanted to kick out Carlos Ghosn from the company and therefore put together a team dedicated to searching around for something that would justify them to do that.

“This prosecution motion wasn’t initiated because the prosecution side believed that Mr. Ghosn had committed an illegal act. Fundamentally there is a problem with this being treated as a criminal act,” he said.

Hironaka further said that the prosecutor’s office is supposed to be acting in the public good for everyone and not behalf of a specific corporation.

“From the investigation level, there were various problems and mistakes with this case. Furthermore, the Japanese persecution office can’t reach overseas so they rely on Nissan employees to go into Mr. Ghosn’s offices and residences and removed objects illegally,” he said.

Hironaka said there is no evidence to support the alleged wrongdoing claim that Nissan made payments to SBA in Oman, and Ghosn re-directed that money to himself or his family.

“The amounts that were paid by Nissan matched exactly the amounts due to SBA,” he said.

The lawyer had a similar response to the reports connecting some donations by Ghosn to a school in Lebanon that would somehow benefit himself. “There is absolutely no evidence or factual basis for indicating that,” Hironaka said.

He said that his team is trying to access correct information and find out what evidence the prosecution might have.

“I have made an effort to share information with the media, including the foreign media, during this whole pre-trial motion,” he said.

Under the Japanese system, the prosecutors are not required to disclose all the evidence at their disposal. Japanese law requires that prosecutors must disclose anything related to any evidence related to the specific filings they make.

They must also disclose any evidence that is related to the filings that are made by the defense counsel. However, there is no requirement for them to disclose evidence from other parts.

Ghosn was arrested at Tokyo’s Haneda Airport on Nov. 19, 2018, on multiple charges related to his stewardship of the two companies.

The cases involved not only Nissan-Renault and Japan’s Mitsubishi Motors (part of the Franco-Japanese alliance), but also the Japanese and French governments along with various key players from Asia and the Middle East.

Nissan was on the brink of bankruptcy in March 1999, with about 2 trillion yen ($17.6 billion) in interest-bearing debt.

This is when it entered a capital partnership with major French automaker Renault SA. Ghosn has been credited for turning the company around dramatically since then.

However, fears that the high-profile CEO and chairman was planning to merge Nissan into a much larger multinational motor alliance appeared to have fueled speculation regarding the future of the company.

It was reportedly argued within Prime Minister Shinzo Abe’s government that the automaker would no longer be recognizably Japanese.

The case has larger ramifications and the two governments have routinely become involved in discussions related to its future.

According to news reports, when Macron and Abe met in Buenos Aires, the French president asked that the Franco-Japanese alliance be maintained.

On being asked by Arab News Japan about reports of a prosecution team visiting Saudi Arabia and Oman, Hironaka confirmed that the visit indeed took place after Ghosn’s arrest.

“However, we have not been given any access to any information that they may or may not have gathered there,” he said.