SoftBank secures WeWork takeover

January 2020 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

January 2020 Issue

Japanese multinational conglomerate Softbank group is to invest more than $10bn in beleaguered US office-sharing start-up WeWork.

The investment includes $5bn in new financing and the launching of a tender offer by SoftBank of up to $3bn for existing shareholders. Upon closing of the transaction, SoftBank will own around 80 percent of WeWork. The company will have invested more than $13bn in the money-losing firm.

Under the specific terms of the deal, SoftBank will accelerate a $1.5bn cash infusion into WeWork that was expected in April 2020 for $11.60 per share. WeWork’s co-founder and chief executive, Adam Neumann, will receive a payout of around $1.7bn, including a $185m consulting fee. Mr Neumann will become a board observer and Marcelo Claure, the chief operating officer of SoftBank Group, will assume the position of executive chairman of the board of directors of WeWork. Artie Minson and Sebastian Gunningham have stepped into the role of co-CEOs of WeWork.

Shares in Softbank fell 25 percent on news of the deal and fell more than 30 percent between their peak in July and the end of October. Softbank’s shareholders expressed concern at the potential profitability of WeWork following the company’s investment.

SoftBank’s takeover of WeWork marks a period of rapid change at the company which was, at one time, valued at around $65bn. The company is now thought to be worth $8bn – less than the $10bn SoftBank had invested in the company before the rescue package. WeWork had been attempting to go public – the company filed its initial public offering (IPO) paperwork in mid-August, though those plans are now suspended indefinitely.

“SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work,” said Masayoshi Son, chairman and chief executive of SoftBank Group Corp. “WeWork is at the forefront of this revolution. It is not unusual for the world’s leading technology disruptors to experience growth challenges as the one WeWork just faced. Since the vision remains unchanged, SoftBank has decided to double down on the company by providing a significant capital infusion and operational support. We remain committed to WeWork, its employees, its member customers and landlords.”

“WeWork is redefining the nature of work by creating meaningful experiences through integrating design, technology and community,” said Mr Claure. “The new capital SoftBank is providing will restore momentum to the company and I am committed to delivering profitability and positive free cash flow. As important as the financial implications, this investment demonstrates our confidence in WeWork and its ability to continue to lead in disrupting the commercial real estate market by delivering flexible, collaborative and productive work environments to our customers. I look forward to helping WeWork realise its vision for the benefit of WeWork employees, members, landlords and communities worldwide.”

Softbank will now begin the process of right-sizing WeWork. Though it is unknown exactly how many employees will leave the company in the coming months, there will be redundancies, with some estimates suggesting as many as 4000 may be laid off. According to WeWork’s website, as of October 2019, the company has 743 coworking sites open and coming soon across 124 cities in more than 36 countries. The company has around 12,000 employees.

According to the Financial Times, WeWork lost $219,000 every hour of every day during the 12 months leading up to March. In 2018, WeWork’s losses and revenue both doubled, to $1.9bn and $1.8bn, respectively. In March, the company projected $3bn in revenue over the coming year, however it lost $700m in the first quarter of 2019.

For SoftBank and its Vision Fund, the investment in WeWork will be a challenging one. The company is expected to report write-downs in the value of its Vision Fund investments.

Richard Summerfield