SoftBank Group Corp. has agreed to assume a majority stake in co-working office space provider WeWork, according to The Wall Street Journal and multiple news outlets. The company was in danger of running out of cash in the coming weeks and picked SoftBank’s rescue deal over JPMorgan Chase’s competing proposal. The deal values WeWork at approximately $8 billion—significantly lower than the $47 billion valuation it had after SoftBank’s investment in January.
“It is not unusual for the world’s leading technology disruptors to experience growth challenges as the one WeWork just faced,” SoftBank founder and Chief Executive Masayoshi Son said in a statement. “Since the vision remains unchanged, SoftBank has decided to double down on the company by providing a significant capital infusion and operational support.”
SoftBank has a three-year plan in place to turn WeWork around, and one of its own top managers, Marcelo Claure, who is also executive chairman of Sprint, is expected to assume the role of WeWork executive chairman, said two people with knowledge of the matter, The New York Times reports.
“The new capital SoftBank is providing will restore momentum to the company and I am committed to delivering profitability and positive free cash flow,” Claure said in the news release.
SoftBank had already owned about a third of WeWork and this deal will bring its ownership stake up to about 80% of the company. WeWork co-founder Adam Neumann, who recently resigned as Chief Executive, could receive nearly $1.7 billion after SoftBank assumes its majority stake and he’ll likely cut off all ties with the company. Neumann can sell $970 million of shares (about one-third of his stake) in a tender offer where SoftBank would buy up to $3 billion in WeWork stock from employees and investors, according to The Wall Street Journal.
SoftBank will also extend Neumann credit to help him repay a $500 million loan back to JPMorgan, according to people familiar with the matter. Additionally, the company will pay Neumann a $185 million consulting fee. According to sources, Neumann agreed to work exclusively with WeWork for four years and will step down from the board, but stay around as an observer and maintain a minority stake.
Neumann will leave the co-working office provider a billionaire, but most WeWork employees will not be so fortunate. They are stuck with stock options that are at a $20 per valuation based on the SoftBank deal, according to former executives familiar with the compensation packages, The Wall Street Journal reports. The underwater stock options leave many employees with not much besides their salaries. The thousands of employees of whom layoffs are expected, will not receive any severance.
Meanwhile, SoftBank is looking to rescue what looks to be a bad investment. Company founder Masayoshi Son was confident in WeWork and Neumann—so much so that SoftBank invested in the company numerous times on its own and through its $100 billion Vision Fund, which includes outside investors. According to sources, Son apologized to those investors and said he put too much faith in Neumann, The Wall Street Journal reports.
Softbank invested more than $9 billion into WeWork at a $24 billion valuation between 2017 and earlier this year, Sanford C. Bernstein & Co. analysts said. This current deal would bring the company’s total equity investment in WeWork to more than $13 billion—for a company that’s worth less than $8 billion today. Given how much SoftBank has invested in WeWork, the only way the company could label this takeover a success is if the co-working space provider is sold or goes public at a valuation of $15 billion or more, according to people familiar with the matter.