Softbank jumps to WeWork’s rescue with takeover
SoftBank Group agreed to spend more than US$10 billion to take over WeWork on Tuesday, doubling down on an ill-fated investment and giving a near US$1.7 billion payoff to the U.S. office-space sharing startup’s co-founder Adam Neumann to relinquish control.
The deal represents a reversal of fortune for WeWork and its largest shareholder, SoftBank Group Corp., which has committed more than US$13 billion in equity to a company valued at US$8 billion.
The bailout comes as SoftBank chief executive Masayoshi Son is seeking to convince investors to participate in the Japanese company’s second mammoth Vision Fund, for which he is seeking to raise US$108 billion. To stem WeWork’s bleeding, SoftBank will need to reverse its widening losses and find a way to make it profitable.
Shares in SoftBank dropped 2.5 per cent on Wednesday in Tokyo, while the cost of default protection on the firm has risen, with the fiveyear credit default swap jumping 17.7 points in a week.
The rescue financing also marks a dramatic fall from grace for Neumann, who as recently as last month was preparing to take WeWork public as CEO after attaining a US$47-billion valuation for it in January. While WeWork employees face the prospect of thousands of layoffs, Neumann has secured a US$685-million side deal with SoftBank to step down from the board of WeWork’s owner, the We Company, according to people familiar with the arrangement.
Neumann also has the right to sell US$970 million of shares, according to one of the sources, as part of a tender offer in which WeWork will buy up to US$3 billion in WeWork shares from existing investors and employees at a price of US$19.19 each. He currently owns a little over a fifth of WeWork, and is expected to retain a stake. He faced margins calls on his personal borrowings against WeWork’s private stock as a result of the collapse of the company’s valuation.
SoftBank has agreed to extend to him a US$500-million loan to repay a credit line from JPMorgan Chase & Co, as well as pay him a US$185-million fee for a four-year assignment as a consultant to WeWork, one of the sources said.
Neumann had drawn down US$395 million on JPMorgan’s credit line, another source added.
Under the terms of the deal with SoftBank, he must use the proceeds from selling his stock to first repay the loan extended to him by SoftBank, according to the source.
Even though he will give up his board seat, Neumann will get two representatives on WeWork’s board, one of the sources said. WeWork said in a statement that its board will be expanded and control how Neumann’s shares are voted.