SoftBank’s WeWork bailout in doubt

Japanese investment behemoth SoftBank has warned that it might back away from its $3bn share purchase of WeWork, reneging on the tender offer it agreed in autumn last year, according to reports.

The deal, which was due for completion on 1 April, secured the ousting of WeWork’s then-chief executive Adam Neumann, who pioneered the company. As part of the deal, Neumann was permitted to sell up to $970m in stock.

WeWork, which takes long leases on buildings in major cities and adorns them with contemporary design and modish perks before renting them out to tenants on short-term contracts, is under regulatory investigation in the US over its representation of its financials and valuation.

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Its shareholders were notified by SoftBank that this could mean the Japanese holding company was not compelled to complete the deal, according to multiple sources.

“The Japanese investment giant didn’t explicitly cancel the deal,” says The Wall Street Journal, “and its notice to WeWork could be a negotiating tactic, or a way to delay the investment as markets remain volatile.”

Indeed, despite predictions that the news could lead to WeWork’s collapse, late on Wednesday Axios reported that WeWork told employees in an internal company memo “that the company has plenty of access to capital and that it will keep its co-working buildings open so that its members can keep their own businesses running”.

“The press is mischaracterizing SoftBank’s commitment to WeWork,” the memo said. “The tender offer is to WeWork shareholders – not to fund the WeWork business.”

Nevertheless, global quarantines enforcing, or at least recommending, working from home, are straining commercial real estate companies.

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“The global economic shock triggered by the coronavirus pandemic has raised stark questions about the outlook for all commercial property companies, in particular for co-working providers such as WeWork,” says the Financial Times.

In January last year, SoftBank’s CEO Masayoshi Son invested in WeWork with a sum that valued the company at $47bn. His trust, however, proved misplaced, and what Neumann described as the “largest physical social network in the world” was revealed as a loss-making exaggeration.

SoftBank’s October rescue deal instead valued the company at $8bn. “My investment judgment was poor in many ways,” said Son to his shareholders, after WeWork’s real valuation became apparent. “I overestimated Neumann’s good side. I turned a blind eye to [his] bad side on things like corporate governance. I have learned a harsh lesson.”