WeWork shares fall 5% as company plans to restructure financials, admits weakness

Many companies that went public through SPACs were forced to restate their financial information in a similar way after the SEC clarified rules for SPACs, including big-name SPAC targets like Virgin Galactic Holdings Inc.
SPCE,
-7.13%

and DraftKings Inc.
DKNG,
-9.58%

See more: Virgin Galactic, DraftKings for financial revision after SEC guidance for SPAC

WeWork went public long after those companies and after they had adjusted their finances. Shares began trading as WeWork in October following a merger with BowX Acquisition Corp., a SPAC that was listed in August 2020. When the SPAC went public, it did not count the correct amount of equity. ownership and the problem remains unresolved during implementation- until the merger.

WeWork explained in the filing: “The Company previously classified a portion of the Public Shares as equity in perpetuity. “Following further assessment, the Company determines that the Public Shares include certain redemption features that are not solely within the control of the Company, pursuant to ASC 480-10-S99, which requires the shares. that is classified as temporary total equity.”

WeWork also revealed that the misclassification of equity led the company’s management to determine that the company had a serious weakness in its financial reporting oversight. It will detail its plans to address the weakness in future filings.

A WeWork spokesperson later emailed MarketWatch calling the reference to a materiality warning “a complete misrepresentation of what was filed with the SEC today.” In a phone discussion, multiple WeWork representatives argued that the severe weakness warning and recalibration referred only to the financial firm BowX, not WeWork.

BowX ceased to exist when WeWork officially merged with financial vehicles on October 20. WeWork attempted to reinstate BowX’s previous financials last month without a specific filing with the SEC – a correction known as ‘small r’ – but Wednesday’s filing shows the agency asked for a more serious action, including a physical weakness warning.

Accounting expert and journalist Francine McKenna told MarketWatch: “When the SEC tells these people they have to do a ‘big R’ adjustment, that’s when it includes a material weakness warning.

“And WeWork owns the accounting as of October 20,” she added.

Company later publicize a statement, said “WeWork’s plan to revise its predecessor BowX’s financial statements is unrelated to WeWork’s current operations and WeWork’s financial statements.”

WeWork shares fell more than 5% in after-hours trading after the disclosure, after closing down 2.7% at $8.46. According to FactSet, the stock has traded between $8.02 and $14.97 since the consolidation, with the company’s valuation on Wednesday at about $6.2 billion.