WeWork gets a reprieve as SoftBank injects US$9.5 billion, giving it a 80 per cent stake in the co-working start-up
- Founder Adam Neumann will now leave the company’s board as part of the package, who will still get US$1.2 billion in WeWork stock
- SoftBank is currently working to raise another, larger version of its US$100 billion Vision Fund, but losses from its recent investments could run into the billions of dollars
WeWork has secured a US$9.5 billion rescue package from SoftBank Group, a deal that hands 80 per cent of the company to the Japanese conglomerate while capping one of the more dramatic business debacles in recent memory.
The transaction announced in Tokyo on Wednesday marks the end of an era for the troubled co-working giant, which raised money at a US$47 billion valuation in January, pulled out of a botched initial public offering attempt last month and is now valued at less than US$8 billion in the bailout.
WeWork’s arc – from one of the world’s most valuable start-ups to surrendering much of the company in an emergency bailout – has captivated Wall Street and Silicon Valley. Founder Adam Neumann will now leave the company’s board as part of the package, to be replaced by SoftBank executive and newly appointed executive chairman Marcelo Claure. Neumann is set to walk away from the deal with as much as US$1.2 billion in WeWork stock, a US$500 million credit line from SoftBank and a roughly US$185 million consulting fee, people familiar with the matter have said.
The deal with SoftBank, which includes US$5 billion in new financing and an acceleration of a US$1.5 billion existing commitment, grants a reprieve to WeWork parent We Co, which was on track to run out of money as soon as next month. The company has been racing to slash costs since it pulled its IPO in September, and is expected to fire thousands of employees this month.
“This is exactly the reason why people are suspicious about actual valuations of unicorn companies,” said Mitsushige Akino, an executive officer with Ichiyoshi Asset Management in Tokyo. “There will be a lot of SoftBank investors that will think it’s crazy to invest this much money into one company.”
The capital infusion does not give SoftBank a majority of voting rights and WeWork will be treated as an associate, not a subsidiary. That might allow SoftBank to wield influence at WeWork without having to show all of its liabilities on the balance sheet. SoftBank’s shares fell 2.5 per cent in Tokyo on Wednesday, their biggest drop in three weeks, but off earlier lows.