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SoftBank throws WeWork multibillion-dollar lifeline

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WeWork and SoftBank have signed a deal that will see the Japanese tech giant inject an $8 billion (R117 billion) rescue investment and take over 80% of the embattled shared workspaces company.

Under the agreement, disclosed in a statement, SoftBank has committed to provide significant funding to the We Holdings-owned company, as it faces the risk of running out of cash in the next few weeks.

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

Additionally, SoftBank will accelerate an existing commitment to fund $1.5 billion, which is 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.

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

“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.”

Financial woes

The SoftBank deal comes a month after WeWork announced in a statement that its co-founder and CEO Adam Neumann will step down and only serve as non-executive chairman of the board.

The decision came after WeWork shelved its plans for an initial public offering last month, after its investment bankers struggled to persuade money managers on Wall Street to invest in shares of what has been described as a “risky” business model.

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

Neumann was criticised for a series of irresponsible financial decisions, which included the purchase of a $60 million luxury private jet, and his erratic management style, as the company accrued more debt than it can pay off.

According to The New York Times, the real estate company had $2.5 billion in cash at the end of June; however, analysts predicted financial mismanagement would lead to it completely running out of cash before the middle of next year.

Announcing his plans to step down last month, Neumann said in a statement: “While our business has never been stronger, in recent weeks, the scrutiny directed toward me has become a significant distraction, and I have decided it is in the best interest of the company to step down as chief executive.”

The SoftBank deal has increased WeWork’s value to just over $8 billion, a far cry from its 2016 value of $15 billion. Meanwhile, SoftBank shares took a 3% strain in morning trade today, according to Reuters.

While the SoftBank funding will help WeWork steer its path to prospective success, SoftBank’s fully diluted economic ownership of WeWork will not hold a majority of voting rights at any general stockholder meeting or board of directors meeting. In addition, it does not control the company, with WeWork maintaining it will not be a subsidiary, but rather an associate of SoftBank.

Artie Minson and Sebastian Gunningham, co-CEOs of WeWork, said: “This financing provides WeWork with the capital to fully realise its objective of being the partner of choice to our members and landlords, while at the same time providing a platform for growth and capital returns for shareholders and employees.

“We will have the flexibility to continue streamlining our assets and stabilising the business without sacrificing our global brand and exceptional products. Narrowing our strategic focus to our core WeWork desk business will ensure we continue to provide our members with a great day at work, every day.”

WeWork’s board will appoint Marcelo Claure, COO of SoftBank Group, to the position of executive chairman of the board of directors of WeWork, effective upon closing of the accelerated $1.5 billion payment commitment.

While the company maintains Neumann will become a board observer, speculation is rife that SoftBank could be in the process of handing him a nearly $1.7 billion windfall in exchange for severing most of his ties with the troubled company.

According to WeWork, the board will be expanded and receive voting control over Neumann’s shares.

While Son has been outspoken about his strategy to invest in ambitious businesses, SoftBank’s investment has come under scrutiny from sceptical investors.

String of lawsuits

Earlier this month, WeWork tenants working from its US and Canada offices received an e-mail from the company informing them of “potentially elevated levels of formaldehyde” in the building’s phone booths after a tenant alerted it to “odour and eye irritation” after spending time in the co-working space.

It was later discovered the contamination was caused by the manufacturer of the phone booths, leading to WeWork removing 1 600 phone booths in the two areas.

The embattled company is also the target of gender and age discrimination lawsuits from former executives.

In June, former WeWork senior vice-president and head of compensation, Lisa Bridges, filed a complaint in a New York state court, alleging the company's pay significantly and unfairly favoured men.

After raising her concerns with the company, Bridges alleges she was abruptly put on leave.

Her lawsuit came weeks after former WeWork VP of construction Richard Markel, 62, filed an age discrimination lawsuit in the San Francisco Superior Court.

In his complaint, Markel alleged the company hired a younger man to take over his responsibilities and terminated him when he complained.

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