Softbank Backs Away From Buying $3B in WeWork Shares, Cites China Restructuring

Softbank has reportedly pulled back from buying $3 billion in WeWork shares from existing shareholders, citing legal investigations of the company’s management and a possible restructuring of the co-working giant’s China business.

The Japanese investment firm sent a letter to WeWork shareholders this week, according to separate reports by the Wall Street Journal, the Financial Times and the New York Times, indicating that it did not expect to purchase the shares by 1 April, as previously scheduled in a $7 billion bailout package agreed to in October of last year following the company’s failed IPO.

The change in plans for the troubled office leasing firm could deny former CEO Adam Neumann a nearly $1 billion payout, but is said to leave in place $5 billion in financing that Softbank has committed to keep WeWork running. However, fresh reports from Hong Kong this week show that the company appears to have already delayed earlier expansion plans in Asia’s wealthiest city.

US, NY Authorities Said Investigating WeWork

Since agreeing to provide fresh financing for WeWork last year, Softbank been asked by the US Securities and Exchange Commission and the country’s Justice Department for information regarding WeWork’s communications with investors, according to the Wall Street Journal report, which cited sources familiar with the company’s operations.

In November of last year both the SEC and the New York attorney general’s office were said to be inquiring into WeWork’s filings for its IPO and other disclosures after reports of conflict of interest and self-dealing by Neumann and other executives at the once lauded real estate startup.

As part of its takeover WeWork, Softbank had reportedly offered to pay $3 billion to buy out shares held by other investors in a deal which would have paid Neumann $970 million for turning over his stake in the company, which also guaranteed control.

In February, however, Softbank’s Marcelo Claure, who took over as WeWork executive chairman following Neumann’s departure, called the reports of the Israeli-born entrepreneur’s payout exaggerated.

“To say that he has walked away with over a billion dollars is totally false,” Claure said in a CNBC interview. Earlier accounts had indicated that in addition to the $970 million stock deal, Softbank was providing Neumann with a $185 million consulting fee and $500 million in credit to help repay loans he had received from the company.

Softbank could still go ahead with its share purchase plan at a later date, according to an account in the Financial Times, although no schedule was provided for such a resumption.

Seeking a New Deal in China

In an account in the New York Times, which cited sources familiar with Softbank’s plans, the future of the company’s China joint venture is also an obstacle to the planned share transaction with the report indicating that the Japanese firm had yet to agree to terms “for consolidating a WeWork joint venture in China.”

While further details regarding the consolidation were not provided, a Reuters report in January indicated that Singapore’s Temasek Holdings, together with Shanghai-based investment manager Trustbridge Partners, had proposed to take a majority stake in WeWork China.

Under its current structure, WeWork is said to own 59 percent of its China business, with Softbank, Hony Capital and Trustbridge, along with other investors, owning the remaining 41 percent. With shared office providers having suffered steep downturns in occupancy since the advent of the novel coronavirus last year, any progress on the reported China buyout deal remains unclear.

In Hong Kong, WeWork has yet to open three new centres which the company had earlier indicated that it would open last year, according to an account today in the South China Morning Post. WeWork had not responded to inquiries from Mingtiandi regarding the status of the planned centres by the time of publication.

In October WeWork had announced plans to open new locations in the Sun Life Tower in Tsim Sha Tsui, in Hysan Place in Causeway Bay, with another location in the Octa Tower in Kwun Tong said to be “opening soon.” Since that time, none of three centres has opened, although a centre managed by WeWork in the Quayside in Kwun Tong has begun operation, as has WeWork H Code in Central.

In November, WeWork was reported to be seeking replacement tenants to take over six centres it had agreed to lease in Hong Kong.