Marcelo Claure of WeWork on the appointment of a new CEO

WeWork Executive Chairman Marcelo ClaureImage source: CNBC Video Screenshot

CNBC Transcript: WeWork Executive Chairman Marcelo Claure Speaks with CNBC’s Andrew Ross Sorkin Today

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Watch CNBC’s full interview with WeWork Executive Chairman Marcelo Claure

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ANDREW ROSS SORKIN: We are at WeWork’s headquarters. And we are with Marcelo Claure. He is the Executive Chairman of WeWork. He is also the COO of SoftBank. And this is his first television interview in quite a while, since actually I think you took this role. And, in fact, I think since you now have gotten this new CEO in place about a week and a half ago. So, thank you for being here.

MARCELO CLAURE: Good to see you again.

ANDREW ROSS SORKIN: So, much to talk about given what’s happened with WeWork and where it’s come and where it’s going. I think the biggest question on people’s minds is how you think you’re going to make money doing this. You have ten plus, maybe 15 with debt, into this company. I think it’s now valued at something on the order of 7.9, $8 billion, just on the books. At one point, people talked about this as a $40 plus billion-dollar valuation company. How does this work? Just walk us through the math.

MARCELO CLAURE: Okay. First, WeWork is a sustainable business. We, over the course of the last 100 days, we put together a five-year plan that includes looking at every single building and putting the financial forecast of every building. And the five-year plan is a great plan. It comes down to execution.

And -- let me take a step back and tell you how SoftBank looks at it. First, it’s an enormous market. And the commercial real estate business is large. Secondly, we have a plan, that I’ll talk to you about it. We have a fully-funded plan which is quite important. You know, they are sufficient between debt and equity.

And you know, pretty much, the plan is funded, and we will have an excess of 2.5 to $3 billion in excess liquidity. And fourth, we have a great new leader. Now when you ask about WeWork, basically our plan calls for us to be profitable by 2021 – even net profitable. Cash flow positive by 2022. And approximately $1 billion of free cash by 2024. So, we have it now come down to execution. We have -- we are going to have our first 1 billion quarter in 2020 and we’re going to have a thousand buildings this year. So, it’s a large business, and with scale, it’s competitive advantage.

ANDREW ROSS SORKIN: In terms of, though, valuation, how do you get back into the money?

MARCELO CLAURE: Well, you get back into the money by having a clear plan and start executing. And when you look at 2020, it’s a huge inflection point. Pretty much, everything is 50% better than last year. And then, when you get to 2021, you’re even net positive.

ANDREW ROSS SORKIN: But in terms of valuation, in terms of multiple, one of the big questions for a company like this is does it get a tech valuation? Does it get some type of step up in terms of how it’s being valued? Or is it effectively valued like every other real estate company?

MARCELO CLAURE: This is not a – real estate is an underlying part of our business, but this is a combination of technology, a combination of amazing buildings with great design, as you can see with the community around it. So, this is – we can never say this is not a real estate business. It has the real estate component.

ANDREW ROSS SORKIN: What’s the comp?

MARCELO CLAURE: Well, it depends on the growth. It depends on – at the end of the day, all businesses are going to be valued on your ability to generate free cash. I don’t care if you’re a tech business or real estate business. And when you have a business today with a clear line of sight that will generate over a billion dollars of fresh cash, high growth, then I believe this will be a business that will provide a substantial return toward the initial investment that SoftBank made.

ANDREW ROSS SORKIN: Let me ask you a question. This is from your boss, Masa Son. Back in November he said: In the case of WeWork, I made a mistake. I won’t make any excuses. It was a very harsh lesson. What was the lesson for you? What do you think the lesson as for him, in terms of the investment and to the extent that you think it went wrong?

MARCELO CLAURE: Maybe the lack of involvement that we had in the business. The complete and open trust in an entrepreneur, who did a good job in terms of building a scale business.

ANDREW ROSS SORKIN: We’re talking about Adam Neumann?

MARCELO CLAURE: Yes. Now we are a lot more involved with all of our businesses. We have active board members in all of our businesses. So, I think that’s what Masa is referring to as a mistake. What we’re not saying is that this business is a mistake. By no means. This is a great business. This is a great business. If you go, this is the only area that hasn’t moved to an on-demand business. I mean, today you can order a desk pretty much from your phone. Think about it. Otherwise, you can go to an office building.

They are going to ask you to sign a five-year lease. You’re going to have to get a builder, a contractor and all of that. Today you can go to your phone and go to an app and you can sign a three-month, a six-month, a one-year lease. So, this was the last part of the world in which the on-demand economy really hasn’t had an effect.

Today, you can see the growth – there’s very few businesses in the world in this type of business, where we have grown from 200 buildings in 2017. At the end of this year we’re going to have over 1,000 buildings. And these are large buildings. They house 1,000 people. So therefore, it’s a great business. It’s high growth. Our customers love it. It has a great brand. So, I could not be more positive on the future of WeWork.

ANDREW ROSS SORKIN: Do you talk to Adam Neumann?

MARCELO CLAURE: Rarely.

ANDREW ROSS SORKIN: Rarely?

MARCELO CLAURE: Yeah.

ANDREW ROSS SORKIN: Not that much anymore.

MARCELO CLAURE: I mean, Adam calls and he gives us his opinion.

ANDREW ROSS SORKIN: And what does he think of all of this?

MARCELO CLAURE: Well, I think he’s very excited. He’s very excited that the business is transitioning from, you know, high-growth, to a more, I would say, more disciplined business with accountability, with more mature leadership.

ANDREW ROSS SORKIN: I know that you have been asked this a lot, especially by employees in this company. But just speak to it -- I know that you tried to speak to it before, the idea of Adam effectively walking away with more than a billion dollars, after what felt like a massive failure in terms of the larger valuation of this company during the IPO process.

MARCELO CLAURE: Right. So, let’s start by saying that Adam hasn’t walked away with over a billion dollars. There’s a tender ongoing right now, in which Adam will have the right participate, as well as shareholders. Adam is the largest shareholder of the company. He was a founder. And as we do a tender to buy shares from all the shareholders, he’s going to have the same opportunity as any other shareholder. But to say that Adam has walked away with over a billion dollars is totally false.

ANDREW ROSS SORKIN: Do you think you could have cut a different or better deal so that he at least optically these questions wouldn’t exist?

MARCELO CLAURE: I mean, I think it’s easy to go back and say, ‘What would a deal have been like?’ But what we’re saying is SoftBank expressed an interest in owning a larger part of WeWork and Adam is a large shareholder. So, as you do a tender to buy shares, he has an option to participate. We have no idea how much he plans to sell and that’s what people speculate of how much he can potentially walk away with. But Adam had not walked away with a billion dollars.

ANDREW ROSS SORKIN: You just hired a new CEO. Comes from the real estate world. Does that change the culture of WeWork because -- and this goes to, is this a tech company? Is this a real estate company? Is this something else?

MARCELO CLAURE: First, we hired a leader, right? A great leader that has probably done one of the most amazing turnarounds in the retail industry, GGP, which as you know he took it from bankruptcy and sold it for tens of billions of dollars to Brookfield. That was the transformation of a leader. The company has a great culture. And there’s a lot of -- they had to do a lot of innovation in order to transform that retail business. It’s a very similar play here. So, we have got to get away from the -- ‘Is it a tech business?’ and ‘Is it a real estate business?’ WeWork has its own space. It’s a unique company.

ANDREW ROSS SORKIN: --a special sauce of something that elevates it--to the extent that it’s not a real estate business, there was this sort of special cultural sauce that was layered on top that actually created that excitement and to the extent created a higher valuation. No?

MARCELO CLAURE: The excitement doesn’t change. All you have to do is go to a WeWork building and when you find the combination of amazing real estate with amazing design with technology and with community, that’s a special place for WeWork. It’s not your traditional real estate where renting an empty box and design it yourself.

This is a service company, which you’re walking in—you have all these services available for you as a member to focus on doing your job and then let everything else be served WeWork.

ANDREW ROSS SORKIN: Long-term, you can have more leases and you can have other people and you’re going to be servicing other people’s leases. What do you think this looks like?

MARCELO CLAURE: We had a thousand leases. There’s nobody in the world that has a thousand leases today all over the world, in 140 cities, you know, I think over 37 countries. The scale -- you can be a WeWork member in Boston and then be able to work in 140 cities.

ANDREW ROSS SORKIN: Do you want to have less leases overtime?

MARCELO CLAURE: Not necessarily. We have to make sure that we onboard these buildings. That the 1,000 buildings that we have are profitable and doing a good job. And then we are going to grow in different facets. We might do more management deals. We’re talking about potentially doing franchising. And we’re going to continue to open new buildings in great cities, the same type of business that we have. The sustainable business is solid. It is a business that generates cash and it’s a business that’s profitable.

ANDREW ROSS SORKIN: Coronavirus. You have a number, actually I think 100 different WeWorks in China. What’s happen right now?

MARCELO CLAURE: Well, we are -- first wanting to make sure that no members and no employees are infected and that’s great. That’s a great win. We’ve been following the guidelines of the Chinese government.

We have temporarily closed 100 buildings that we’re monitoring and we’re working with the Chinese government to make sure that we’re following the proper guidelines. So that’s contained for us. But obviously it’s just an area of concern. I mean, having 100 building closed with members not having access to it and just working with emergency personnel, it’s an issue.

ANDREW ROSS SORKIN: Let me ask about SoftBank.

MARCELO CLAURE: Sure.

ANDREW ROSS SORKIN: And specifically, the Second Vision Fund. There have been reports that it has been very hard to raise new money for that fund. And that instead of $108 billion fund, it might come in and the majority of that money is going to be SoftBank money and not outside investor money. What can you say about the state of that fund-raising effort?

MARCELO CLAURE: So, one: it’s too early. Right? I mean, you have to put things in perspective. We just finished Vision Fund One. That was $100 billion two years. It had never been done. So now, as this fund starts to finish and then we’re looking at how we’re going to do Vision Fund Two.

Obviously, performance is key. And Vision Fund One performance, once you start getting away from the media and the craziness and all of that, the fund is performing well. You know, we’ve had a lot of complaints about Uber. Well, Uber is up I think 18% from when we invested. Complains against WeWork. And we feel very good that we have a great plan for WeWork.

So, I think as things start to calm down and you start seeing that Uber was a good investment, ride sharing has an incredible amount of potential, that WeWork has a plan, and if they’re executing quarter-over-quarter, you’re going to see that potentially,  you know, the additional Vision Fund are going to come along. But you know, we’re long-term thinkers. And when we launch the first $100 billion fund, it was supposed to last five years. So, we’ve accelerated--

ANDREW ROSS SORKIN: Do you think that the strategy is shifting? Do you think there’s a major strategy shift in terms of SoftBank and Masa’s own thinking, in terms of growth at any cost versus trying to get to profitability much quicker and what that ultimately means? And also, means, by the way, about the outside valuations that I think he has thought about as a long-term investor.

MARCELO CLAURE: Well, I don’t think it’s ever been growth at any cost. I think that’s a misconception. We like accelerated growth. We like companies that can take, you know, a lot of market share. And we like companies with profitability and cash flow, just like any other investment. You have got to look at the entire track record of SoftBank. Right?

ANDREW ROSS SORKIN: But there have been conversations over the past couple of months with portfolio companies that have said, ‘Okay, guys. I know that we said put your foot on the gas. But maybe we have to put our foot on the brake.’ Right?

MARCELO CLAURE: I wouldn’t call it the brake. I would say you decelerate at different times. But again, I mean, nothing has changed in terms of, we believe that there are certain companies and there are certain entrepreneurs that have developed a business models that you get accelerated the growth.

Happened with Alibaba, happened with Yahoo! Japan, happens with many of our companies. What I think is—what I think we’re a little bit confused is everybody is saying, ‘Oh my god, this Vision Fund performance is terrible.’ It’s not. By the way, it’s great. You have had 8 IPOs. The value that has been generated, half of it realized. Most of the funds, their values are still on paper. We’ve returned money to our LPs.

And at the same time, the two big criticisms of the Vison Fund have been what? Uber. Well, guess what? You’re following Uber. Uber is up over investment and we have a tremendous amount of good views on what’s going to happen to Uber. And the second was WeWork. And now, after 100 days, we have a very clear plan on how to take WeWork to profitability.

ANDREW ROSS SORKIN: What about this idea of paper-based valuation? Because part of the issue, frankly, with WeWork is the idea that effectively there was this artificial valuation of $47 billion in part because SoftBank put money in much in after its own money. So how accurate are all of the marks in the SoftBank funds?

MARCELO CLAURE: Oh, they very accurate. I mean, You have to look – funds are going to move up and down value in many cases. The only difference is because we’re a publicly traded company we have to report on that. I mean, most funds don’t have the problem.

They have to report on a quarterly basis on what is happening to their mark ups and all of that. I think we are conservative today. I think, every valuation is done by independent third party by one of the big five. And they’re based on the traditional methodology in which you value companies, in future discounted cash flow and others. So, I don’t think it’s a fair way to look at it.

Of course, there are going to be some investments that are great and some that are not so great. But again, I go back and I say focus on what has been the criticism : Uber and WeWork. Those have been the two that everyone has talked about and we feel comfortable with both.

ANDREW ROSS SORKIN: Paul Singer, Elliott Management, long-time activist. He’s gotten into a lot of companies over the year and he’s pushed people around. What is the relationship like now, between Elliott and SoftBank, now that he has a stake in that company and is calling for changes?

MARCELO CLAURE: To start, I mean, we have our own activist. He’s called Masa. He’s continuously looking for ways to make this business better. And what we’ve said since day one, any shareholder that has views, we’re always going to listen. You know, Masa is a pretty open person. The management team of SoftBank is pretty open. We’re always going to listen to suggestions because we’re all in the same boat. We all want to make sure—

ANDREW ROSS SORKIN: But are – but are buybacks and financial engineering things that Masa wants to pursue?

MARCELO CLAURE: I think it depends. I mean, if you go back last year, we did a large stock buyback.

ANDREW ROSS SORKIN: Right.

MARCELO CLAURE: And it depends—

ANDREW ROSS SORKIN: Isn’t that antithetical, though, to his idea about making long-term investments?

MARCELO CLAURE: I think it depends on the situation. By no means are we saying we’re going to do something we’re not. There’s a new shareholder who basically has some views. We will take his views. We will discuss the views. And we will – like we do with any other shareholder.

ANDREW ROSS SORKIN: Final question, on Sprint. You have – you wear multiple hats. The Spring T-Mobile deal, we’re still waiting on the judge. When do you think we’re going hear?

MARCELO CLAURE: So, it’s been two years. And first, thank you to all the employees at Sprint for their incredible resilience through this time. It’s up to the judge. Right now, he has all he needs to make a decision. We expect the decision to come any time.

But there again he can take his time. So, we hope in the next couple of weeks, few years, we’re going to have a decision. And, based on the merits of the merger, nothing has changed. We believe that this is the best for U.S., for consumers, and for competition.

ANDREW ROSS SORKIN: Okay. Marcelo Claure, thank you for joining us this morning. We appreciate it.

MARCELO CLAURE: Thank you.

ANDREW ROSS SORKIN: It was great to see you.  Guys, back to you.

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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