SoftBank has decided to back out of a big part of its WeWork bailout package.
The company will not go through with a planned purchase of $3 billion worth of shares from other investors and employees, including former CEO Adam Neumann, a source with knowledge of the matter told Business Insider. The decision also most likely means WeWork won't be able to tap into a $1.1 billion credit line from the Japanese conglomerate; that debt financing was conditioned on SoftBank completing its share-purchase plan.
The special committee of WeWork's board of directors — Bruce Dunlevie, who is a partner at the venture-capital firm Benchmark, and Lew Frankfort, the CEO of Coach — confirmed SoftBank's decision to abandon the share purchase in an emailed statement to Business Insider.
"The Special Committee is surprised and disappointed at this development," Dunlevie and Frankfort said in the statement. "The Special Committee," they continued, "will evaluate all of its legal options, including litigation."
Dunlevie and Frankfort had previously threatened legal action if SoftBank were to back out of the deal.
A WeWork spokeswoman, Valerie Sarnataro, declined to comment, as did a SoftBank spokeswoman, Sarah Lubman.
Bloomberg previously reported SoftBank's decision to abandon the share purchase.
SoftBank announced its $3 billion tender offer last fall as part of its plan to rescue WeWork after the real-estate giant's failed initial public offering. Some $970 million of the offer was due to go toward buying shares from Neumann, WeWork's cofounder, who was ousted from his roles as CEO and chairman after the failed IPO. The tender offer was due to expire at midnight New York time Wednesday.
SoftBank could be in for a fight from other WeWork investors
The Wall Street Journal had previously reported that SoftBank was considering walking away from its share-purchase plan. The conglomerate reportedly warned WeWork investors earlier this month the real-estate giant wasn't in compliance with the terms of the tender offer because it's under investigation by the Securities and Exchange Commission and the Justice Department, among other governmental bodies.
The decision to abandon the offer will most likely increase tensions between SoftBank and WeWork's other investors. Benchmark planned to sell $340 million worth of WeWork shares to SoftBank as part of the tender offer, which would have made it the biggest individual seller in the deal other than Neumann, a source familiar with terms of the tender offer told Business Insider. SoftBank was expected to buy another $1.5 billion worth of WeWork shares from other investors.
According to SoftBank, less than 10% of the $3.3 billion would have gone to current employees. But if former employees are included with current ones, that portion goes up to about 15%, or about $450 million, according to the source, who asked not to be named. Some 1,000 to 2,000 current and former employees would have been able to sell their shares to SoftBank, said the source, who criticized the Japanese company for trying to play down the benefit of the offer to those employees.
"It is a large sum of money to people who need it in time like this," the source said.
SoftBank's withdrawal puts Marcelo Claure, the WeWork chairman and SoftBank chief operating officer, in an especially tough spot as he balances leading a company navigating the coronavirus crisis as its biggest investor backs out of a major promise. In an October all-staff meeting leaked to Business Insider, he reassured employees who were nervous about the value of their options.
"Nobody should have a worthless option," Claure said in October.
As part of its rescue package, SoftBank sped up a previously planned $1.5 billion equity investment in WeWork, underwrote a $1.75 billion credit line from Goldman Sachs and other financial institutions, and offered a $3.3 billion credit line of its own to the company. WeWork stands to lose out on $1.1 billion of the $3.3 billion SoftBank tender offer as a result of the abandoned credit facility.
WeWork was once the crown jewel of SoftBank's $100 billion original Vision Fund, with a valuation of some $47 billion. But public investors frowned on the company's massive losses, high costs, and questionable executive transactions, forcing WeWork to abandon its IPO effort even after offering to cut its valuation by nearly 75%.
After the failed IPO, WeWork was mere weeks away from running out of money before SoftBank stepped in with its rescue package. That package helped stabilize the company for the short term, but it's still burning through copious amounts of cash — more than $1 billion in the fourth quarter alone.
The company went through $1.4 billion in the last quarter of 2019, per an investor letter released last week. WeWork ended the year with $4.4 billion in cash and cash commitments.
Got a tip about WeWork or SoftBank? Contact Troy Wolverton via email at twolverton@bjinnox.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. Contact Meghan Morris via Signal at 646.768.1627 using a non-work phone, email at mmorris@bjinnox.com, or Twitter DM at @MeghanEMorris. You can also contact Business Insider securely via SecureDrop.
- Read more:
- Stock buybacks and cutting losses: SoftBank, the Japanese investment giant behind WeWork, is under immense pressure to shield itself from an upcoming downturn
- SoftBank is reportedly looking to raise $10 billion to support startups reeling from the coronavirus outbreak — and some might not have enough cash to survive more than a year
- WeWork execs are trying to reassure staff it still has access to billions of dollars in debt: Bloomberg
- SoftBank could walk away from the $3 billion WeWork stock buybacks it agreed to as part of its bailout plan: WSJ
