WeWork braces for fight as SoftBank wavers on stock deal
Office provider vows ‘all necessary actions’ to ensure SoftBank carries out agreed $3bn purchase
Several WeWork directors have publicly attacked SoftBank for attempting to walk away from a promised $3bn investment in the office provider, describing the Japanese company’s plan to pull out of the deal as “inappropriate and dishonest”.
Bruce Dunlevie and Lew Frankfort, the two WeWork directors who oversaw and approved the company’s bailout last autumn and who sit on the special board committee, said they would take “all necessary actions” to ensure that SoftBank carried out its agreed purchase of $3bn of stock from employees and shareholders.
“Not only is SoftBank obligated to consummate the tender offer as detailed by the master transaction agreement, but its excuses for not trying to close are inappropriate and dishonest,” Mr Dunlevie and Mr Frankfort said on Sunday.
“Further, SoftBank has made numerous assurances to employees, and reneging on the agreement would be completely unethical, especially given the current environment,” they added.
The Japanese telecoms-to-technology group notified WeWork investors on March 17 that regulatory investigations into the company could allow it back out of the planned share purchases, which included a buyout of as much as $970m worth of shares from WeWork co-founder Adam Neumann.
The threat from SoftBank raised scores of questions, both for the future of WeWork and for the health of the Japanese group itself.
Shares in SoftBank have more than halved since late February when a global stock sell-off sparked by the coronavirus outbreak took hold, a hit far worse than the declines experienced by the broader market.
SoftBank said on Sunday that it continued to honour its obligations and had already provided more than $5bn in working capital to WeWork since October when it agreed to rescue the company. The $5bn included a $1.5bn cash injection as well as $2.2bn in debt and a $1.75bn line of credit for WeWork from Goldman Sachs that SoftBank guaranteed.
“The tender offer has no impact on SoftBank’s commitment to WeWork or on the financial strength of the business,” SoftBank said in a statement. “SoftBank has informed stockholders that all of the agreed-upon closing conditions must be satisfied before the tender offer can be completed. As of now, they are not.”
WeWork declined to comment.
A fight between WeWork, investors including Mr Neumann and SoftBank would mark a stunning turn for the group at a time when it is grappling with the fallout from the coronavirus. It would involve some of the biggest names in the legal world, with lawyers from Skadden Arps, Paul Weiss, Weil Gotshal & Manges, Morrison & Foerster and Wilson Sonsini all involved.
The bailout was meant to turn the tide at WeWork, which had racked up billions of dollars of losses as it expanded to more than 140 cities. A new leadership team installed by SoftBank had started work on cost cuts and renegotiating leases with its landlords.
Now, with the WeWork board in disagreement — SoftBank has appointed several board members alongside Messrs Dunlevie and Frankfort — it is unclear how the company will move forward.
SoftBank’s argument in favour of backing away from the $3bn share tender will hinge on how a US judge interprets wording in its takeover agreement. The Japanese group told shareholders it had the ability to withdraw from the agreement if it could prove investigations by the Securities and Exchange Commission or the US attorney-general for the Southern District of New York would have a “material adverse effect” on the company, or result in a “material liability” to SoftBank or its Saudi-backed Vision Fund.
The SEC has been scrutinising WeWork and Mr Neumann over how they presented financial information and the company’s valuation to employees and investors, according to people briefed on the matter.
Few companies have had success triggering a material adverse effect clause, although it has led to deals being renegotiated.
The $3bn share buyout was expected to pay out roughly $350m to Mr Dunlevie’s firm Benchmark Capital if it tendered its entire stake, according to documents reviewed by the Financial Times. Early WeWork employees also had been eagerly awaiting the disbursement from SoftBank after the WeWork initial public offering was aborted last year.