SoftBank Group Corp. scrapped an agreement to spend US$3 billion to buy WeWork stock from former Chief Executive Officer Adam Neumann and other shareholders, despite threats of legal action from some members of the company’s board.
SoftBank had agreed to buy the shares from Neumann, Benchmark Capital and others as part of a bailout package last year, but notified stockholders in mid-March that conditions for the deal hadn’t been met. On Thursday, after the deal’s deadline passed, SoftBank confirmed it would end the offer, citing five conditions that were not satisfied by the closing date.
“SoftBank remains fully committed to the success of WeWork and has taken significant steps to strengthen the company since October, including newly committed capital, the development of a new strategic plan for WeWork and the hiring of a new, world-class management team,” said Rob Townsend, chief legal officer at the company. “The tender offer was an offer to buy shares directly from other major stockholders and its termination has no impact on WeWork’s operations or customers.”
SoftBank shares rose 2.5 per cent while the broader Japan market fell.
A WeWork committee of two independent directors voiced disagreement over SoftBank’s decision and suggested there may be legal action.
“The Special Committee is surprised and disappointed at this development, and remains committed to reaching a resolution that is in the best interest of WeWork and its minority shareholders, including WeWork’s employees and former employees. The Special Committee will evaluate all of its legal options, including litigation,” the committee, made up of Benchmark’s Bruce Dunlevie and another director, Lew Frankfort, said in an emailed statement.
The share purchase was hammered out in October as part of SoftBank’s rescue of WeWork, after the co-working company’s failed initial public offering left it weeks away from running out of money. In the deal, the Japanese conglomerate would have taken a stake of almost 80 per cent in the company and buy US$3 billion in shares from investors as well as current and former employees. Neumann, ousted in the deal, was set to sell up to US$970 million in shares. The generous exit package angered many of his employees, thousands of whom had their jobs eliminated in the following months as WeWork parent We Co. tried to cut its expenses.
WeWork signs long-term leases with landlords around the world and then rents that space to smaller companies and freelance workers, a business that has been particularly vulnerable to the coronavirus and economic slowdown. In a letter to bondholders, the company warned it didn’t expect to hit its financial targets for 2020.
“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,” Townsend said.
In the past few weeks, the shareholder buyout deal has become increasingly contentious. SoftBank sent the letter to WeWork investors saying it could withdraw from the agreement if certain conditions weren’t met by the deadline. SoftBank cited regulatory concerns and a handful of government investigations into WeWork, including from the U.S. Securities and Exchange Commission and the Justice Department.
The two WeWork independent board directors responded, saying they would consider legal action if SoftBank pulled out. “Its excuses for not trying to close are inappropriate and dishonest,” a spokeswoman for the directors had said in a statement.
The latest deal is separate from SoftBank’s bailout of WeWork itself, a package that included US$5 billion in new financing and the acceleration of an earlier US$1.5 billion commitment. Most of the money would have gone to five shareholders, including Neumann and the venture capital firm Benchmark, which was looking to sell US$600 million in shares, Bloomberg has reported. Less than 10 per cent of the proceeds would have gone to current WeWork employees, SoftBank has said.
Still, the transaction has repercussions for WeWork. As part of the deal, the company would have gotten US$1.1 billion in debt financing from SoftBank if the share purchase was completed. The Japanese company has decided it is not legally obligated to provide that capital, although it may yet do so, according to a person familiar with the matter.
SoftBank and its affiliates have committed more than US$14.25 billion to WeWork to date, including US$5.45 billion since October, the company said in its statement. WeWork had US$4.4 billion in pro forma cash and cash commitments at the end of 2019, SoftBank said.
Separately, SoftBank said it completed the sale of its U.S. unit Sprint Corp. to T-Mobile US Inc. The deal removes about US$40 billion in net debt from the Japanese conglomerate’s balance sheet.
--With assistance from Ellen Huet and Peter Elstrom.