Softbank has withdrawn its proposal to buy $3 billion in WeWork shares, following through on a letter to investors sent last month threatening a U-turn on the deal which gave it control of the troubled co-working pioneer.
The Japanese investment firm announced yesterday that it had ditched the offer, which would have seen former CEO Adam Neumann receive a nearly $1 billion payout, citing WeWork’s failure to wrap up the restructuring of its China and Asia businesses, as well as the company’s lack of progress in resolving legal investigations into the its financing activities.
Softbank said that it had scrapped the share purchase because WeWork had failed to meet these conditions by the 1 April deadline, while also saying that its decision to call off the deal had been influenced by the impact of the COVID-19 pandemic on the shared office provider’s business.
“Given our fiduciary duty to our shareholders, it would be irresponsible of SoftBank to ignore the fact that the conditions were not satisfied and to nevertheless consummate the tender offer,” said Softbank’s senior vice president and chief legal officer, Rob Townsend.
An additional $1.1 billion in financing, which was part of the tender offer, is also now off the table, according to sources cited in Bloomberg and The Financial Times.
Remaining Committed to WeWork’s Success
Despite the U-turn over the deal, Softbank said that it remained “fully committed to the success of WeWork”, while adding that the termination would have no impact on the company’s “operations, customers, five-year business and strategic plan, or the vast majority of WeWork’s current employees”.
The share buyout had been agreed to as part of a rescue package last October, and would have seen early employees and shareholders including Benchmark Capital receive payouts worth hundreds of millions of dollars in return for providing Softbank with a majority stake and voting control of WeWork.
Neumann and Benchmark had stood most to benefit from the sale, according to Softbank’s announcement, with their combined equity constituting more than half of the stock set to change hands, while current WeWork employees had tendered less than ten percent of the total.
Benchmark had stood to reap roughly $350 million, after offering to sell $600 million in shares, according to sources cited by The Financial Times, while Neumann’s windfall would have been $970 million.
The California-based venture capital firm had launched a public attack on Softbank after its threat to call off the deal last month, calling its terms “inappropriate and dishonest”, while early employees were said to have reacted with anger.
Facing Civil and Criminal Investigations
Softbank, which said it has committed $14.25 billion to the loss-making co-working company – including $5.45 billion since October – is reported to have been asked by the US Securities and Exchange Commission, as well as the country’s Justice Department, for information regarding WeWork’s communications with investors.
In addition, the SEC and the New York attorney general’s office are said to be scrutinising WeWork’s filings for its IPO and other disclosures over misleading profitability metrics used by that company, following criminal and civil investigations into conflicts of interest and self-dealing by Neumann and other executives.
Softbank’s questions regarding the potential restructuring of WeWork’s China business come after talks on a proposed buyout of that business have remained stalled since the outbreak of COVID-19, which has seen the co-working sector suffer steep downturns in occupancy.
Singapore’s Temasek Holdings, together with Shanghai-based investment manager Trustrbridge Partners, were said in January to have proposed to take a majority stake in WeWork China, but Softbank’s statement yesterday suggests that this deal has failed to move forward
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.