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Business deals

SoftBank takes 80% stake in WeWork with $9.5bn bailout

Japanese conglomerate will have majority economic interest but not voting control

SoftBank Group Chairman and CEO Masayoshi Son speaks at an earnings release in Tokyo. (Photo by Keiichiro Sato)

NEW YORK -- WeWork announced on Tuesday that it had accepted a $9.5 billion rescue package from Japan's SoftBank Group that would give its biggest investor an over 80% economic interest in the troubled office space company but not voting control.

The rescue package marks the end of an era for WeWork, which was forced to pull a planned public share offering last month and is now valued in the bailout at around $8 billion, versus the $47 billion that a fund-raising valued it in January.

It also puts SoftBank, a Japanese conglomerate with no experience in real estate, on an unprecedented quest to restructure the battered unicorn even though it will not hold a majority of voting rights either among shareholders or at the board level.

Masayoshi Son, chairman and CEO of Softbank, said in a statement that the Japanese conglomerate had "decided to double down on the company" as it remained a firm believer in WeWork's vision about how the world of work was changing.

"It is not unusual for the world's leading technology disruptors to experience growth challenges as the one WeWork just faced," Son said. "Since the vision remains unchanged, SoftBank has decided to double down."

WeWork founder Adam Neumann will meanwhile leave the company's board, to be replaced by SoftBank executive and newly appointed Executive Chairman Marcelo Claure.

Neumann, who will remain a "board observer", will also walk away with almost $1 billion in cashed-out stock that he can sell into the tender offer, plus, according to multiple reports, a $500 million credit line from SoftBank to repay a credit facility led by JP Morgan, and a roughly $185 million consulting fee.

WeWork co-founder Adam Neumann attends a signing ceremony at WeWork Weihai Road flagship in April 2018 in Shanghai, China. Neumann will leave the board of the company as part of the deal.   © Getty Images

SoftBank, which has already poured over $10 billion into the coworking startup, "believes coworking has a bright future, and that WeWork, which disrupted the multi-trillion-dollar real estate sector, will continue to be the market leader," said a person familiar with the rescue package.

But the jumbo rescue package for WeWork, which industry watchers had expected to run out of money as early as this year, has raised concern on Wall Street.

Dan Alpert, managing partner at New York-based investment bank Westwood Capital, said while SoftBank's bailout is a "stabilizing move," the logical next step for debt-ridden WeWork would involve the company declaring bankruptcy, so that it can "aggressively restructure its real liabilities, which are the leases."

"We have never seen a so-called unicorn restructure in bankruptcy, primarily because no such company other than this would see any real benefit in doing so, inasmuch as they don't have the type of liabilities that WeWork has," Alpert said.

The unconventionality of Son, whose 300-year investment thesis has been called both genius and insane, also leaves outsiders with an obscure map of WeWork's path forward.

"Son is not a value recovery guy. He doesn't sell value -- he sells vision and dreams," Alpert added. "When you combine Son's position as a 'visionary' with the financial realities of [WeWork], you get a situation we have never seen before."

Neumann stepped down as CEO last month amid mounting investor skepticism over the company's governance and operations, which also led We Co. to shelve its initial public offering, planned for this fall.

Its expansion-first strategy had pushed free cash flow into the red. We Co. recorded a net loss of $1.9 billion last year, its prospectus revealed.

The real estate startup, which billed itself as a tech company, has $47 billion in noncancelable operating lease commitments.

The company planned to raise $3 billion by going public, and it had arranged a $6 billion financing package from major lenders contingent on a successful IPO. The SoftBank deal provides a similar amount of funding.

SoftBank said its fully diluted economic ownership of WeWork after the bailout will be approximately 80%, adding that "SoftBank will not hold a majority of voting rights at any general stockholder meeting or board of directors meeting and does not control the Company."

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