Softbank has decided to scrap a 3 billion dollar stock buyout tender with WeWork owing to unfulfilled contracts. Therefore, the company along with former CEO, Adam Neumann, is suing SoftBank for the same.
WeWork began its operations in 2010 and is headquartered in New York. The company provides rented office spaces to individuals, start-ups and small businesses by leasing out buildings. It was the brainchild of former CEO and co-founder, Adam Neumann and had been expanding greatly across the world. Believing himself to be an avant-garde he aimed his company to raise world’s consciousness.
SoftBank, a Japanese company, was a dominant shareholder in WeWork by pumping in $10 billion through the SoftBank’s Vision Fund. Besides, there wasn’t much vision about WeWork and its mounting losses. Softbank’s CEO Masayoshi Son even compared it to the tech-company, Alibaba.
Source: Quartz
The buildings for WeWork were being taken on lease for long terms but rented out on short terms. Thus, big chunks were spent at once, in hopes of recovering it in bits and parts. Added customers meant additional variable costs for higher maintenance, increased security, more refreshments and they all needed funds. Even selling portions of the company didn’t raise enough capital and the company was liable to pay $18 million for leases alone as of June 2019.
After all the hype, WeWork decided to go public last year but it was a failed attempt. At that time, the company was valued at $47 billion with SoftBank alone having $10 billion in it. The public was not too keen in buying its stocks due to its huge losses as that of $900 million in 6months, not so appealing vision and preposterous valuations. Also, the then CEO Neumann had been using money for personal gains taken at lower interest rates under the company’s name.
In such hard times, SoftBank came to its rescue once again last year when it offered to bail out the office space company by offering close to $ 9.5 billion with certain terms including SoftBank owning 80% of the WeWork and the CEO Neumann leaving his chair. The offer package included a $1.5 billion equity investment, $3 billion worth of stocks to be bought back and $5 billion of debt financing. Neumann himself planned to sell his stock worth $970 million through this. The agreement was made in October 2019, signed on December 27 and April 1, 2020 was decided to be the closing date.
Come April 2020, CEO Son threatened WeWork to withdraw the $3 billion stock purchase deal citing new investigations by government authorities into WeWork as one of the reasons and other reasons including terms of contract not being met. The company spokesperson last month convinced that SoftBank’s withdrawal wouldn’t affect its employees and customers, or its operations and business strategic plan. However, about $450 million would’ve been received by former and current employees.
SoftBank itself was a victim of operating losses for the first time in several years and with its own financial troubles on board, it decided to back out. So now WeWork decided to file lawsuit against SoftBank for retracting the deal and from May, former CEO Neumann also joined in.
WeWork is in hopes of SoftBank completing the offer or at least pay the compensatory damages. It is worth noting here that this tender, if successfully completed, wouldn’t have waived off all the losses of Wework but would’ve just helped the stock holders with liquidity.
With the global pandemic setting in and many businesses and operations, including its own, suffering losses, Sotfbank would probably downturn its strategy of rapidly spending cash in new companies and is expecting its portfolio companies to go public in coming months.
The course of WeWork was already shaky, burdened with losses, and the novel coronavirus only added fuel to the fire. Its business plan of shared workspace is challenging in times like this where work from home is becoming the new trend. In hopes of recovery, WeWork had attempted to keep its offices open even when governments had asked workers to stay home. Hard times call for even harder measures but what does one do when its foundation itself is in shambles.
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Article written by-
Samriddhi Nahata.
Literary Sources-
- CNBC https://www.cnbc.com/2020/04/07/wework-sues-softbank-over-withdrawal-of-3-billion-tender-offer.html
- NY Times https://www.nytimes.com/2020/04/01/business/economy/wework-softbank-stock.html
- The Verge https://www.theverge.com/2020/5/5/21247989/wework-adam-neumann-lawsuit-stock-deal-softbank
- Finshots https://finshots.in/archive/adam-neumann-sues-softbank/