The WeWork board agreed to a multibillion-dollar bailout and investment package from SoftBank on Tuesday, handing control of the cash-strapped company to the Japanese telecoms-to-technology group and releasing it from the grip of its co-founder Adam Neumann, according to people briefed on the matter.
SoftBank, which was already WeWork’s largest backer, is to pump $6.5bn dollars into the shared office company through new loans and equity, and will provide Mr Neumann a nearly $1.7bn package to step down from the board, the people said.
The SoftBank proposal accepted by the board would set WeWork’s equity valuation at just $8bn, a fraction of the $47bn price tag the property group was assigned in the Japanese company’s last investment round.
SoftBank, founded by Masayoshi Son, is expected to pay Mr Neumann a roughly $185m consulting fee in return for leaving his role as chairman of the board and dropping the extra voting rights on his shares that gave him outsized influence.
It also plans to buy nearly $1bn worth of his stock as part of a tender offer for up to $3bn of shares from early investors and employees, and to loan him $500m, the people said. Mr Neumann had loans worth hundreds of millions of dollars outstanding from a number of Wall Street lenders this summer.
He is expected to retain a stake in the company and remain a board observer.
WeWork directors had considered a rival rescue financing package from JPMorgan, the bank that led its attempt to go public and with which it has deep ties. But the Wall Street lender was unwilling to include the tender offer for existing shares as part of its package, one person said. The bank believed the tender offer overvalued WeWork equity, and acted as a bailout to Mr Neumann, they added.
The deal caps a stunning fall for Mr Neumann, who co-founded WeWork nine years ago and at one point had claim to a stake in the company worth roughly $13bn. His role as chief executive atop the property group came to an end just days after the company aborted an initial public offering, and his fortune is now worth a fraction of that earlier level.
Meanwhile, WeWork employees face an uncertain future, with thousands of jobs expected to be cut in a restructuring that will eat up some of the rescue funding in severance payments.
WeWork’s sudden change of fortunes comes just weeks after Mr Neumann and his advisers had pitched the company as a fast-growing disrupter of a giant commercial real estate industry, with a mission of “elevating the world’s consciousness”.
People close to the company said that Mr Neumann’s desire to demonstrate that its growth could continue led it to open new properties at an aggressive pace in the third quarter, expecting the IPO to bring in $3bn-$4bn in new equity and unlock a $6bn package of new loans from its banks.
Instead, the failure of the IPO and the high upfront cost of fitting out new premises left it facing the prospect of running out of cash as soon as the end of November, the FT was first to report. Artie Minson and Sebastian Gunningham, who took over as co-CEOs from Mr Neumann, have reined in new openings, initiated the sales of some of the businesses WeWork bought — as well as a $60m jet — and were expected to begin lay-offs soon.
Marcelo Claure, SoftBank’s chief operating officer, is to become chairman of WeWork under the plan. He is expected to lead a search effort to bring in new management as the company faces a wave of departures, and could look to replace Messrs Minson and Gunningham, two of the people added.
WeWork did not respond to multiple requests for comment. SoftBank declined to comment.
With WeWork’s valuation cut to $8bn in SoftBank’s rescue package, Chris Lane, an analyst at Sanford C. Bernstein, estimated that the Japanese group would incur losses of around $3.6bn, of which $2.2bn would be from its direct investment in the property group.
WeWork’s outstanding bonds slipped marginally on the news of the board’s decision on Tuesday morning, which was first reported by the Wall Street Journal.
The loans and payments from SoftBank will help alleviate a potential financial strain on Mr Neumann personally. The cash crunch at WeWork as well as the contemplated repricing of his stake threatened losses to banks including JPMorgan Chase, UBS and Credit Suisse. Mr Neumann’s shares were collateral on some of his loans, and banks can typically demand margin calls if the value of such assets falls below a certain point.
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