SoftBank Backs Off Part of WeWork Plan -- WSJ
March 18 2020 - 3:02AM
Dow Jones News
By Liz Hoffman and Eliot Brown
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 18, 2020).
SoftBank Group Corp. is backing away from part of its planned
bailout of WeWork, people familiar with the matter said, privately
citing several regulatory investigations of the office-sharing
company.
A notice sent to WeWork shareholders Tuesday said that SoftBank
believes regulatory probes into the startup's business, including
from the Securities and Exchange Commission and Justice Department,
give it an out under the deal struck last fall to purchase $3
billion of WeWork shares from existing investors.
That would include Adam Neumann, former chief executive of
WeWork parent We Co., who had the right to sell up to $970 million
in stock as part of the October deal that led to his ouster from
the company's board.
The development won't affect the $5 billion lifeline SoftBank
agreed to give WeWork directly -- cash the startup badly needed
then as it ran out of runway, and which it is likely to continue to
need as the worsening coronavirus outbreak empties out its
desks.
Some of that money, including $1.5 billion in fresh equity,
already has been invested.
The Japanese investment giant didn't explicitly cancel the deal,
and its notice to WeWork could be a negotiating tactic, or a way to
delay the investment as markets remain volatile. U.S. stocks have
plunged -- then risen, only to fall again -- on fears of the
long-term economic effects of the outbreak.
Representatives for SoftBank, WeWork, the SEC and the Justice
Department declined to comment.
SoftBank shares tumbled. By late morning in Tokyo on Wednesday,
they had declined more than 8%, hitting their lowest levels since
2016.
SoftBank recently has received information demands from the SEC
and the Justice Department as well as New York state regulators
about WeWork's business practices and communications to investors,
some of the people said.
The company previously had told shareholders that it expected to
go ahead with the purchase of the existing shares on April 1.
The $3 billion stock purchase that SoftBank is backing away from
was a key part of the company's October bailout of WeWork. SoftBank
saved the company from a cash crunch following WeWork's failed IPO
by agreeing to provide about $5 billion of debt and speed up a
prior commitment to invest another $1.5 billion into the company.
The IPO, which was pulled after a rough reception from Wall Street,
would have raised over $3 billion in cash.
SoftBank struck the deal after a negotiation with WeWork board
members and Mr. Neumann, who agreed to cede his board seat and
voting rights of his shares and received a $185 million consulting
fee. Mr. Neumann in recent months has returned to Israel, where he
was raised.
The coronavirus is expected to have a large impact on WeWork's
business, as companies around the globe have sent their employees
home to work, hurting demand for short-term office space. Several
cities and states, including San Francisco, have ordered residents
to shelter in place. A possible recession could hurt small
companies that are among WeWork's important customers.
WeWork's basic business model -- signing long-term leases with
landlords and subleasing short-term to companies -- leaves it
vulnerable to big drops in office demand, as it is still on the
hook for its own payments to landlords. It previously has said it
could withstand a recession because companies would turn to
shorter-term office space.
--Konrad Putzier contributed to this article.
Write to Liz Hoffman at liz.hoffman@wsj.com and Eliot Brown at
eliot.brown@wsj.com
(END) Dow Jones Newswires
March 18, 2020 02:47 ET (06:47 GMT)
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