SoftBank has decided it will not buy $3 billion in WeWork stock from other shareholders, a board committee of the office space company said Wednesday night, dealing a blow to shareholders, including Adam Neumann, the company’s co-founder and former chief executive, who had hoped to sell their stock.
SoftBank, a Japanese conglomerate and the dominant shareholder of WeWork, had offered to buy the shares as part of its rescue of WeWork, which withdrew its initial public offering last fall and came close to running out of cash. Since the coronavirus spread widely in recent weeks, WeWork’s buildings have been virtually empty, raising questions about demand for its locations when the pandemic is brought under control.
Two weeks ago, SoftBank, which has already poured billions of dollars into the company, threatened to pull out of the stock purchase in part because of government investigations into the company. SoftBank’s payment for the shares would not have gone to WeWork but to the selling shareholders. The offer had an April 1 closing date.
WeWork leases vast amounts of space in office buildings and then sublets it to freelancers, small businesses and large corporations. But the cost of the leases and the expense of converting the locations has consumed billions of dollars. WeWork’s financial burdens were expected to increase this year, as the company continued its breakneck expansion, opening spaces it had already agreed to lease.
“SoftBank remains fully committed to the success of WeWork and has taken significant steps to strengthen the company since October,” said Rob Townsend, chief legal officer of SoftBank, in a statement.
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The board committee said it was “surprised and disappointed” that SoftBank was now backing out of the share purchase and said it would “evaluate all of its legal options, including litigation.”
SoftBank’s chief executive, Masayoshi Son, was a steadfast supporter of Mr. Neumann’s heady vision for WeWork, which centered on creating communal work spaces where employees would collaborate more effectively and feel more inspired. Mr. Neumann left the company last year after investors balked at his management style and personal deals with the company that posed potential conflicts of interest.
SoftBank said the offer to buy WeWork shares could not close because certain conditions had not been met. These, SoftBank said, included the failure to obtain antitrust approvals and complete takeovers of joint ventures in Asia. It also cited government investigations that began after the offer to buy the shares was signed in October. The company is being investigated by the Justice Department, the Securities and Exchange Commission and attorneys general in New York and California.
The special committee is made up of Bruce Dunlevie, a founding partner of Benchmark Capital, a venture capital firm, and Lew Frankfort, the former chief executive of Coach. Both were listed as major WeWork shareholders in the company’s public offering documents.
In its statement, SoftBank said stock belonging to Mr. Neumann and Benchmark made up more than half of the stock submitted into the offering.
If SoftBank fails to go through with the share purchase offer, landlords might question SoftBank’s commitment to WeWork. And if the offer does not take place, SoftBank could hold back $1.1 billion of financing from WeWork, reducing its financial options as demand for office space weakens. As part of its rescue, SoftBank accelerated a $1.5 billion equity investment into WeWork last year and has said that it stands behind another $4 billion of debt financing.
SoftBank is trying to get its own financial house in order. The company and its $100 billion Vision Fund have stakes in many young companies that were struggling well before the coronavirus hit. To appease its own investors, SoftBank said last month that it would sell assets worth up to $41 billion to buy back $18 billion worth of shares and pay down debt.
WeWork’s bonds have plunged and trade at levels that imply investors think the company could default on them. And some analysts are skeptical about SoftBank’s commitment. “It now seems increasingly likely that SoftBank may walk away from the entire takeover deal any day now,” Vicki Bryan, chief executive of Bond Angle, a research firm, said in a research note Wednesday.