SoftBank threatens to pull out of WeWork deal

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 19 Mar 2020

SoftBank is considering revising the terms of the bailout deal it signed with shared workspaces company WeWork almost five months ago.

According to the Wall Street Journal, the Japanese technology company reportedly sent a letter to WeWork shareholders on Tuesday, informing them it may not complete part of its deal tobuy $3 billion worth of shares from existing investors, as planned.

In the notice, the tech giant cites regulatory investigation into WeWork, including probes from the US Securities and Exchange Commission and Justice Department.

Speculation is rife that SoftBank is looking to re-negotiate its offer in light of the looming global recession, as more people opt out of WeWork’s co-working offices, choosing to work from home, due to the coronavirus outbreak.

WeWork was on the brink of financial collapse until it signed an $8 billion rescue deal with SoftBank in October 2019, which saw the Japanese tech giant take over 80% of the shared workspaces company.

The deal included $5 billion in new financing and the launching of a tender offer by SoftBank, of up to $3 billion for existing shareholders.

Additionally, SoftBank committed to accelerating an existing commitment to fund $1.5 billion, which was expected to provide WeWork with significant liquidity to execute its business plan and fast-track the company’s path to profitability and positive free cash flow.

At the time of the deal, Masayoshi Son, chairman and CEO of SoftBank Group, said in a statement: “SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work, and 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.”

As part of the deal, former WeWork CEO Adam Neumann reportedly received a $1.7 billion “golden handshake” for stepping down as the company's chairman.

SoftBank’s stock is down 27% this month, seeing the highest fall since 2012, after S&P Global Ratings cut its outlook to negative.

While SoftBank is still supporting WeWork, it is not clear if the Japanese conglomerate is threatening to completely pull out of the agreement, or delay the purchase until WeWork gains business confidence, during this critical time.

WeWork has declined to comment on the matter to ITWeb.

Chasing profitability

WeWork shelved its plans for an initial public offering last year after its investment bankers struggled to persuade money managers on Wall Street to invest in shares of what was described as a “risky” business model.

Following the news, the company announced plans to re-brand to The We Company, a move the company said better reflects its boundless ambitions.

The SoftBank deal increased WeWork’s value to just over $8 billion, a far cry from its 2016 value of $15 billion. Since the deal, the co-working spaces company has been investing heavily in global expansion, outlining a five-year strategic plan that guides a growth-led transformation.

The workspace company has around 609 000 global memberships, in over 127 cities and 33 countries across the globe.

This year, it announced a new executive team in preparation for its global expansion plans.

Since opening its doors in SA, WeWork has seen large enterprises like Standard Bank, Naspers, T-Systems, FTI Consulting and Red Hat move their teams to WeWork’s co-working offices.