October 23, 2019

SoftBank clinches deal to take over WeWork ― sources

SoftBank clinches deal to take over WeWork ― sources

SoftBank Group Corp (9984.T) has agreed to spend more than $10 billion to take over WeWork, doubling down on an ill-fated investment and paying off its co-founder Adam Neumann to relinquish control, people familiar with the matter said on Tuesday.

The deal represents a stunning reversal of fortune for the U.S. office-space sharing startup, as well as its largest shareholder, SoftBank, which with the latest commitments will have spent more than $19 billion on a company that is now valued at just $8 billion.

The setback 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 $108 billion. To stem WeWork’s bleeding, SoftBank will need to reverse its widening losses and find a way to make it profitable.

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 chief executive after attaining a $47 billion valuation for it in January.

While WeWork employees now face the prospect of thousands of layoffs, Neumann has secured a $685 million side deal with SoftBank to step down from the board of WeWork’s owner, The We Company, the sources said.

Neumann 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 $500 million loan to a credit line from JPMorgan Chase & Co (JPM.N), as well as pay him a $185 million fee for a four-year assignment as a consultant to WeWork, one of the sources said.

Neumann had drawn down on $395 million on JPMorgan’s credit line, another of the sources added. Under the terms of the deal with SoftBank, he must use the proceeds of 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, according to one of the sources.

Reuters first reported on Monday that Neumann was negotiating to step down from the board and would serve as an adviser.

“The consulting arrangement is mind-boggling. It’s terrible governance. Why pay the guy who got WeWork into this mess for advice. It’s adding insult to injury and a little more injury too,” said Nell Minow, vice chair of shareholder advisory firm ValueEdge Advisors.

Nevertheless, some WeWork investors said they supported the deal.

“Adam is a visionary who has created an impactful company which has transformed the way many people work, live and think. We think he deserved to take some money off the table for his contribution to the company,” said All Blue Capital managing partner Matt Novak. He declined to say how big his firm’s stake in WeWork is.

Source: Reuters

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