Co-working Spaces (Holy WeWork Batman)

Brookfield Asset Management Inc. and Onex Corp. are reportedly prepping a $3.7b offer to purchase IWG Plc, a commercial real estate company and office space owner. Those who have been around the restructuring industry long enough will recall that IWG is the successor entity to Regus, which filed for bankruptcy nearly 15 years ago after it expanded too quickly in the midst of the dot-com boom. Now, putting aside "location location location," which, admittedly, is, uh, we guess kind of a big deal in real estate, it's important to note that IWG actually owns its office space. It also has nearly 3k locations. Its main competitor, WeWork, in contrast, does not own most of its 283 lease rejections...uh, oops, we mean, locations. Which, naturally, means that it is valued at 7x BAM and Onex's offer for IWG. Because, you know, pixy dust. 

Since we're on the topic of WeWork, we might as well note that news out of its WeLive division has been scant ever since Bloomberg reported a few months ago that the concept wasn't gaining traction. Notably, however, Node, a co-living company based in London and New York just launched its third Bushwick-based location. Things are only going to get harder for WeWork as it tries to justify its lofty valuation.

Tax Reform (Long Unhappiness & Therapy Bills)

Who is Advising Giancarlo Stanton?

If the bankers aren't happy, it must be worthwhile. Totally kidding. Ken Moelis of Moelis & Co. ($MO) has joined the ranks of Bridgewater Associates LP CIO Ray Dalioopposing the elimination of the SALT deduction and questioning to what degree there'll be unintended consequences. Indeed, people in Los Angeles, Chicago and New York are freaking the eff out about what the reform legislation will mean as a practical matter. As it relates to the loss of the mortgage interest deduction, a choice quote"An analysis of the Senate bill by Moody’s Analytics concluded that home prices in Manhattan could fall nearly 10 percent in the coming years because of the bill. Some New York and New Jersey suburbs could be even more vulnerable because property-tax rates are higher there and prices are still recovering from the bursting of the housing bubble." Boom. Nothing like an instant 10% decline in your real estate value. But don't worry, New Yorkers. Allegedly, naysayers argue that the threat of flight for tax arbitrage purposes is overblown. Or is it? The IRS recently reported a "record loss of people" out of Illinois. Where did they go? Florida and Texas, of course. Apparently Giancarlo Stanton didn't get the memo.

Query whether the rise of the 1099-economy and the "remote-first" movement will interact with the new tax bill in odd ways. People today seem less and less tethered to a physical location. Doesn't that, in many ways, explain the rise of WeWork? If people can leave, they will. We hear Austin, Denver, Nashville, and the Research Triangle are all looking ripe for growth.  

Unicorns 2.0 (Scooping Up Retail)

Hudson's Bay & WeWork Say "Let's Make a Deal"

Hudson's Bay Co. ($HBC) was a real newsmaker this week. The company sold its Lord & Taylor NYC location to WeWork for $850mm. It also got a (convertible preferred) equity infusion of $500mm through a joint venture between WeWork and the Rhone Group. Which means that Softbank basically owns a piece of Fifth Avenue now. Regulate THAT misdirection/obfuscation. Anyway, HBC will use the proceeds to pay down its $1.6b of debt and, presumably, pretty itself up for a potential take-private transaction. For sure, the future is uncertain. P.S. This re: WeWork (firewall). Bankruptcy Judge ABC: "And so, Banker XYZ, on what valuation basis is the company's plan of reorganization viable and feasible?" Banker: "Our valuation and size today are more based on our energy and spirituality than it is on a multiple of revenue." Judge ABC: "Come again? Bankruptcy plan confirmation denied!" Going forward, whenever we have a typo or a busted link we hope you'll only judge us on our energy and spirituality. 

Notable (Abercrombie, Halcon, Sears Canada & More)

Abercrombie & Fitch ($ANF) see-sawed its own stock after proclaiming that it would seek a buyer (stock went up) but then, a mere few weeks later, indicating that it had terminated the sell-side process. The shares plummeted 21%.

Halcon Resources Corp ($HK) plans, per Reuters, to sell its North Dakota operations for $1.4b in cash as part of a broader (and smart) plan to shift its focus to the lower cost-basis Texas' Permian Basin. The stock popped on the news. The piece makes it sound like this is the CEO's grand vision - as if he's not getting a tremendous amount of pressure from his new(ish) credit-oriented short-term-oriented overlords. 

Hedge Funds. Apparently the business isn't as bad as previously thought. That is, unless these investments in Puerto Rico bonds crater.

India (Geographical arbitrage). Hey you. Yeah, you, Associate sitting in New York with a 15 year path to partnership. You may want to consider moving to India and becoming an expert in the new Insolvency and Bankruptcy Code there. Apparently nobody there has a clue what the hell is going on. You may be able to fast-track your career. We want credit if you pull the trigger.

Professional Athletes (Short Personal Finance Wherewithal). Livan Hernandez, who made $53mm over the course of his baseball career, has filed for bankruptcy. Seriously, what the hell is wrong with these guys? 

Sears Canada. C'mon. Eddie Lampert, the King of Bad-Money-After-Good (aka all things Sears ($SHLD)), is reportedly considering a deal for Sears Canada. Officially, the company has hired a joint venture between Gordon Brothers Canada ULC and Merchant Retail Solutions ULC for the liquidation of inventory/FF&E of 45 locations and is actively pursuing a transaction: over 20 parties have signed NDAs.

Tea (Short Retailing it). Small potatoes relative to the universe we typically cover but given that Capital Teas Inc. was once a 22-store retailer of, well, tea, and is now bankrupt, we figured we'd note it. We particularly love how the company didn't even bother to update its "bio," of sorts, noting that it was honored as a member of The Inc. 5000, "the nation's fastest growing private companies." Well, not anymore, obvi. The company plans to shutter 10 locations as part of the bankruptcy. If that is considered "fastest growing," the US is even more effed than we thought.

True Value. This is not a distressed candidate - not with $1.51b of revenue in '16 - but the fact that the private company is reportedly looking to market itself is telling in this age of Amazon. The home improvement space is largely thought to be impervious to the "Amazon Effect." At least, that is the narrative behind investing inHome Depot ($HD) and Lowe's Companies Inc. ($LOW). Perhaps people are worried about the narrative? Perhaps they're just looking to take advantage of a potential strategic acquirer tapping capital markets? Interesting.

WeWork. We admit: we're obsessed with this company. On the heals of closing its $760mm Series G round valuing the company at $20b, this startup now officially has a larger valuation than publicly-traded office REITS like Vornado Realty (which we covered here) and Boston Properties. Makes. Total. Sense. Jokes aside, it has inserted itself as a platform for companies like GMIBMSpotify and Salesforce, effectively being the office manager of choice. Interesting model. Can't imagine this remaining in a downturn when companies need to look for ways to cut costs. 

Notable (Div Recaps, Golf, Molycorp, Sycamore Partners, WeWork)

Dividend Recaps. Apparently they are not an exclusively American phenomenon. 

Golf. The best one of us shot a 125 last week so take what we're about to say with a (bitter) grain of salt: golf is pretty lame. Okay, fine, we'll backtrack and admit: we're getting into it but we definitely can see why millennials aren't biting, why Golfsmith filed for bankruptcy and why Nike straight-up cancelled its golf line. Still, a lot of lawyers, bankers, investors, (douchebags,) and advisors play. Perhaps that has something to do with the fact that golf is, in the words of Malcolm Gladwell, "crack cocaine for rich white guys." Read: a lot of you. Which is why we're bothering to mention it. Anyway, speaking of Gladwell, the new season of his solid podcast is up and you can listen to his first episode on the subject of golf here. It's worth the time - especially if you live in Los Angeles. 

MolycorpLots of fighting going on over the rare metals miner.

Sycamore Partners. The private equity shop is reportedly nearing a deal for Staples ($SPLS) for a reported $6b. 

WeWorkWhat happens to the upstart when the cycle turns? We reckon a lot of 363 lease rejections motions, that's what. 

Retail: It's All About Merchandise. Peace Out Mickey Drexler (J. Crew)

 J. Crew's Mickey Drexler blames merchandising and, in this case, a retail exec may actually be telling the truth. In a wildly inept kind of way (note: this blurb was in our newsletter that came out yesterday, Sunday, June 5. As of a few minutes ago, Drexler has been binned by the company. Later Mickey). Particularly since the New York Times dumped on the company's CURRENT merchandise right before the holiday weekend which, guessing here, probably turned off some potential customers. So, this ain't a legacy issue...clearly. Meanwhile, we're slowly becoming fan boys of Professor Scott Galloway. If you're unfamiliar with him (like we were until recently), we recommend you listen to this interview here (podcast). He's insightful about technology and we particularly like how he sh*ts on WeWork - a company that makes absolutely zero sense to us from a valuation perspective. Anyway, his piece "Shark Repellent -- Fighting Amazon" is one of the more succinct summaries on what it takes to combat the "Amazon Effect."