SoftBank to Take Control of WeWork, Reports Say
By Mack Burke and Nicholas Rizzi October 22, 2019 3:43 pm
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WeWork’s board settled on an offer today from its largest investor, Japanese conglomerate SoftBank Group, for a multibillion-dollar bailout and takeover of the struggling coworking giant.
SoftBank was pitching a rescue offer to WeWork’s board in competition with J.P. Morgan Chase, which had come forth with roughly $5 billion in debt financing, according to The New York Times; the pair had a deadline of yesterday to submit final proposals, according to the Wall Street Journal.
As part of SoftBank’s takeover arrangement, it will acquire roughly $1 billion of stock in WeWork’s parent company from the co-working company’s disgraced former CEO Adam Neumann, who was ousted last month after he faced pressure from investors following an utterly disappointing initial public offering, according to the Journal. With this, Neumann is also set to get a $500 million loan from SoftBank to pay off $500 million in debt financing he received from J.P. Morgan, UBS and Credit Suisse (CS) earlier this year; he will also receive a $185 million consulting fee, according to the Journal’s reporting. The deal will also force Neumann — who’s set to pocket around $1.7 billion from the agreement — off of WeWork’s board.
After having already invested just over $10.5 billion in WeWork through its Vision Fund, Tokyo-based SoftBank is planning to pump around $5 billion into the company via new funding and existing shares, giving the Masayoshi Son-led conglomerate as much as 70 percent control of the outfit, CNBC reported yesterday. It had controlled about a third of the company through its previous investments.
Son’s firm will inject $1.5 billion into WeWork — money that it had originally earmarked for next year, according to The Times — and it is also planning to assemble and join a bevy of institutional lenders in funding a $5 billion debt package.
SoftBank’s funding now pegs WeWork’s value at $8 billion, a far cry from the $47 billion valuation that it had surmised in January following its closing on a fresh, $6 billion funding round, according to CNBC. (In October 2018, SoftBank had proposed a $16 billion investment to take a majority stake in the company, before it retreated to providing an additional $2 billion in January, bringing the total from the funding round to $6 billion.)
A spokeswoman for SoftBank declined to comment and representatives from WeWork did not immediately respond to requests for comment.
After WeWork’s disastrous IPO attempt earlier this year threw open the doors to the company’s money-burning model, leading to Neumann’s departure, SoftBank and J.P. Morgan Chase had been mulling proposals to inject capital into the 9-year-old company that was starved for cash.
WeWork’s August IPO filing showed that its revenues grew at a staggering rate from $438 million to $1.82 billion between 2016 to 2018, but its losses have followed a similar growth. During that same time, the company’s net losses increased from $430 million to $1.6 billion. In the first six months of this year, WeWork pulled in $1.5 billion in revenue but posted a net loss of $690 million, according to the filings.
The proposed $16 billion investment from SoftBank late last year could’ve staved off an IPO for years.
The startup also faced scrutiny from potential backers over possible conflicts of interest and questionable behavior uncovered in a Wall Street Journal profile of Neumann.
WeWork executives Artie Minson and Sebastian Gunningham took over as co-CEOs from Neumann and announced plans to stop the IPO less than a week later. The company has also dealt with an exodus of executives and staff since, Bloomberg reported.
Under SoftBank’s takeover, SoftBank executive Marcelo Claure will join WeWork’s management team while Neumann’s stake will fall to “low double digits,” according to CNBC.
