Adam Neumann is throwing a WeWork party today

One thing to start: the online payments company PayPal is in talks to acquire the social media group Pinterest for about $45bn, in what could result in one of the largest corporate takeover deals of the year.

One event to start: the FT’s annual Global Dealmaking Summit is just less than three weeks away. The two-day event will be held virtually with an in-person gathering at London’s South Place Hotel in the afternoon on day two.

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WeWork is going public, bring out the tequila

A group of WeWork’s earliest employees will gather at the Standard Hotel in New York’s Meatpacking District today to celebrate the company’s debut on the stock market.

The party invites have come from an unexpected host — Adam Neumann, WeWork’s controversial former chief executive. Together with his co-founder Miguel McKelvey, they will watch the office-sharing business they created finally become a public company.

It only took two years, Neumann’s ousting and billions of dollars from SoftBank to stave off bankruptcy after its first failed attempt.

Shareholders in BowX Acquisition, a blank-cheque company that agreed a $9bn deal to take WeWork public earlier this year, gave their seal of approval on Tuesday.

That gives WeWork the public listing it had tried to secure in 2019 but at a fraction of the $47bn valuation it once commanded in private markets.

Adam Neumann
Adam Neumann, WeWork co-founder © Reuters

WeWork’s current chief executive Sandeep Mathrani and its chair Marcelo Claure will be at the New York Stock Exchange a few miles downtown to mark the occasion.

The property group has worked hard to distance itself from Neumann, the charismatic boss who persuaded dozens of investors that his business, which effectively takes out long-term leases and rents space out short-term, was the hottest technology start-up on the planet.

But it seems Neumann, who still owns an 11 per cent stake in WeWork and has the right to sit in on board meetings, is in no hurry to cut ties with the company.

For his part Mathrani, who was installed in the top job by SoftBank, has turned to reining in his predecessor’s excesses. He has cut back on costs, slashed the number of office locations and concentrated on WeWork’s core business.

WeWork space in London
WeWork, which operates co-working spaces such as this one in London, is falling short of its $3.2bn in projected revenue for 2021 © Bloomberg

While vanity projects such as WeGrow, the school conceived by Neumann’s wife Rebekah, may be gone, WeWork’s ability to burn through cash remains.

The company told investors it lost $3.2bn in 2020, despite trimming its capital expenditure by about 85 per cent from the previous year, as its business was affected by the pandemic.

Even as WeWork made preparations for its merger with BowX, it reported $3bn in losses for the first half of 2021. The company is also expected to fall $500m short of its projected revenues for 2021, according to an investor presentation earlier this month.

Still, WeWork is expecting a boost from the shift to flexible working, with businesses less inclined to sign long-term leases. A $1.3bn cash infusion from its deal with BowX should also help.

Neumann has almost $250m worth of reasons to watch the stock closely this morning: if it trades above $10 a share, that’s how much will be unlocked in “profits interests” as part of a settlement he struck with SoftBank earlier this year.

The new beat from Goldman’s CEO

Goldman Sachs chief executive David Solomon enters his fourth year atop the storied investment bank talking up a facelift.

For Solomon, a 22-year Goldman veteran who developed a mid-life passion for DJ-ing, a critical part of his strategy involves financing facelifts and other plastic surgeries.

 David Solomon
Under David Solomon, Goldman’s stock has risen by about 80% but it still trades at a discount to its main peers © Bloomberg

Goldman will add these lending opportunities to the bank with its acquisition of the fintech lender GreenSky, announced in September. These consumer loans, made through its digital consumer bank Marcus, are vital to Solomon’s efforts to diversify Goldman from cyclical trading and investment banking revenues.

In this push, Solomon tells the FT’s Joshua Franklin that he remains on the acquisition hunt after a flurry of deals, which includes GreenSky, the investment management arm of the Dutch insurer NN Group and the investment adviser United Capital.

“If there are opportunities to accelerate growth in the business inorganically we’ll consider them,” says Solomon, but with a proviso. “The bar will always be very high on acquisitions”.

GreenSky, which Goldman took public at a price of $23 in May 2018, hit Solomon’s high bar, at just $12.11 a share, or $2.2bn, after its tortured run on public markets.

As Solomon throws Goldman’s ultra-selective front door open through acquisitions such as GreenSky, there is a closing of rank atop the empire.

Goldman’s partnership peaked at 500 employees a few years ago, and will settle to around 400 partners, a decline of 20 per cent.

Solomon tells the FT he asked the partnership committee to evaluate its ideal size “given the business that we were prosecuting” and it recommended 400 to 420 partners.

It’s all part of a change in culture as Solomon tries to bend Goldman to the will of public investors. The market favours interest income and efficient fee-based revenues over the capital-intensive hauls of its traders, or those from its expensive investment bankers.

In a sense, Solomon is betting the market will value revenues generated by a contractor armed with a GreenSky app higher than the next big merger orchestrated by its bankers, who maintain their dominance atop Wall Street’s M&A league tables.

Another benefit is that loans don’t complain.

Line chart of Year-on-year change (%) showing Goldman’s growth in revenue and expenses under Solomon

From the burnout of junior bankers to Solomon’s return-to-office call in June, he’s faced internal strife. Business is booming, for now. Goldman revenues are up 42 per cent in the first nine months of 2021, while Covid-depressed expenses are up just 7 per cent. But it’s an unsustainable level of efficiency.

Perhaps only those “coolsculpting” loans, soon to be inherited by Goldman through its GreenSky acquisition, can keep the bank trim enough to appease Wall Street.

Introducing the Texas two-step

The “Texas two-step” is best-known as a country and western dance popularised in southern US states, writes the FT’s Jamie Smyth.

More recently the term has entered the corporate lexicon as a bankruptcy manoeuvre deployed by companies seeking to shield themselves from personal injury claims.

Johnson & Johnson became the largest corporate so far to try to use the US bankruptcy process to limit its potential liabilities linked to tens of thousands of litigants, who claim its cosmetic talc product caused their cancers.

But lawyers say dozens of other companies are monitoring the high-profile case to determine if they could also benefit by taking advantage of what critics claim are loopholes in states’ corporate and bankruptcy laws that can deny justice to litigants.

J&J baby powder
J&J faces tens of thousands of legal cases from people who allege its baby powder caused cancer © Getty Images

J&J’s failure in June to persuade the Supreme Court to review a $2.1bn jury award to 22 women, who blamed their ovarian cancers on the drugmaker’s talc, appears to be its motivation behind the legal manoeuvre.

The company faces more than 36,000 claims linked to the 100-plus-year-old product and has alleged it has come under “unrelenting assault” by personal injury lawyers.

J&J denies its talc contains asbestos or causes cancer but is moving to shield itself from any other potential blockbuster jury payouts that could hit its bottom line.

Under the “Texas two-step” the New Jersey-based drugmaker first created a separate subsidiary in Texas to hold the talc liabilities.

It then converted it into a new corporate entity based in North Carolina, which it placed into Chapter 11 bankruptcy. Both states have some of the most corporate friendly legal systems in the US.

Critics allege the manoeuvre essentially shifts the legal battle from jury courts to bankruptcy courts, denies claimants their right to be heard in open court and leads to delays in the delivery of justice.

Proponents say it deters “ambulance-chasing” lawyers, which could put viable businesses under enormous strain.

There are at least two precedents of the “Texas two-step”, including one involving a subsidiary of Koch Industries called Georgia-Pacific, which separated asbestos related claims into a separate company that it placed into Chapter 11 in 2017.

This bankruptcy case has still not been finalised.

Meanwhile, draft legislation to reform the US bankruptcy system has been introduced to Congress which would outlaw the practice. But whether it passes into law remains unclear.

Job moves 

  • Eutelsat, the European satellite group being bid for by billionaire Patrick Drahi, has said its chief executive Rodolphe Belmer will step down at the start of next year to take the top job at French IT group Atos. He will replace Elie Girard.

  • Warren Buffett’s daughter Susan and investment firm manager Christopher Davis were elected to the board at Berkshire Hathaway after a resolution to increase the size of its board to 15.

  • Burberry has poached Jonathan Akeroyd from Milan-based Gianni Versace to take over from outgoing chief executive Marco Gobbetti.

Smart reads 

Potent mix How chemical companies like Chemours, DuPont and 3M used charm offensives and complex corporate transactions to avoid responsibility for what experts believe is a public health crisis. (New York Times)

Injury time Fifa got some of the biggest names in football — from Arsenal’s former manager Arsène Wenger to Brazil’s former striker Ronaldo — to help sell a plan to play the World Cup every two years instead of every four. It was meant to please the fans, but it risks breaking the game. (Wall Street Journal)

News round-up

Blackstone buying majority stake in Spanx (WSJ)

Orcel renegotiated exit deal from UBS to unlock pay awards, court hears (FT)

Activist Elliott has large stake in Canadian National Railway (WSJ)

Indonesian start-up GoTo poised for $28.5bn valuation in latest fundraising (FT)

Evergrande’s plan to sell property services division collapses (FT)

UK competition watchdog fines Facebook £50m over Giphy deal (FT)

THG’s Matthew Moulding drops share pledge against personal loan (FT)

Elizabeth Warren renews assault on private equity payouts, worker policies (Bloomberg)

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