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SoftBank abandons plan for $3bn WeWork tender offer

Tech group nixes part of bailout but expects profit from T-Mobile/Sprint merger

SoftBank's pullout casts doubt over $1.1 billion of additional debt financing that was was linked to the deal, though the Japanese tech group says it remains committed to WeWork. (Photo by Yuki Kohara) 

TOKYO -- SoftBank Group is backing out of a $3 billion tender offer for shares in WeWork in a move that threatens to spark legal action and escalate tensions with the founder and early backers of the U.S. coworking space provider.

The reversal casts further doubt over the future of WeWork, one of the Japanese tech group's highest profile investments, which has struggled since its plan for an IPO was scrapped last year. The work space service also faces questions over its business model amid the coronavirus pandemic.

SoftBank also made the move as it is trying to reassure its shareholders over its own financial health, with CEO and founder Masayoshi Son last month launching a $41 billion plan to shore up its finances with asset sales.

SoftBank announced the tender offer in October as part of a $9.5 billion bailout for WeWork. The offer to buy shares included a large payout to WeWork founder Adam Neumann and other early investors.

But SoftBank said in a statement on Thursday that its offer had expired on Wednesday because "certain conditions to the tender offer were not satisfied."

It cited a failure to obtain necessary antitrust approvals, a failure to sign and close the roll-up of a China joint venture and "significant pending criminal and civil investigations."

SoftBank also referred to new actions by governments around the world in response to the outbreak of COVID-19 "imposing restrictions against WeWork and its operations."

"The termination of the tender offer will have no impact on WeWork's operations, customers, five-year business and strategic plan, or the vast majority of WeWork's current employees," SoftBank said.

Hours before the tender offer was due to expire, a special two-member WeWork committee said it had been told SoftBank would pull out and warned of possible legal action. The committee, whose members are Bruce Dunlevie and Lew Frankfort, said it was "surprised and disappointed at this development" and would "evaluate all of its legal options, including litigation."

The end of the tender offer also casts doubt over $1.1 billion of additional debt financing for WeWork that was linked to the share buyout.

A person familiar with the matter said SoftBank was still supporting WeWork and that the property group had secured necessary funding.

Pulling out of the deal may also help SoftBank's profits. The group said on Thursday that it would no longer book a nonoperating loss for the fiscal year ended March 2020 in relation to the tender offer.

On Thursday, SoftBank separately said it would book a profit from the merger between its U.S. mobile network operator Sprint and rival T-Mobile now that the long-awaited deal has finally been completed, easing some pressure on the Japanese tech group and CEO Son.

Analysts say the deal also paves the way for SoftBank to consider selling a minority stake in the combined company, as the technology group tries to clean up its balance sheet in response to investor concerns.

The merger, originally announced nearly two years ago, was delayed due to regulatory review. The closing removes some uncertainty over Sprint and enables CEO Son to focus on restoring investor confidence amid concern over his vast portfolio of tech investments.

SoftBank has attempted to calm nervous investors with its $41 billion asset sale plan, which it said would allow it to boost share buybacks and cut debt. SMBC Nikko Securities said SoftBank can now sell a part of its stake in T-Mobile to T-Mobile, while pledging another part as collateral for a loan.

The group had agreed to swap its 84% stake in Sprint, which it bought in 2013, for a 24% stake in T-Mobile, a deal that closed on Wednesday. SoftBank said it plans to book the difference between the consolidated carrying amount of Sprint and the 304.6 million T-Mobile shares it acquired, as well as 48.7 million T-Mobile shares "to be acquired when certain conditions are met."

SoftBank will book a profit in the April-June quarter. It said it would announce the actual amount of profit "once it becomes certain."

As for the "certain conditions" for acquiring additional T-Mobile shares, they would be met if T-Mobile's 45-day volume-weighted shares hit $150 or above between the second anniversary of the deal's closing and the end of 2025, according to amended terms announced on Feb. 21.

T-Mobile's U.S.-listed shares closed at $85.13 on Wednesday, while shares of SoftBank were down 1.2% in early trade on Thursday, as Tokyo stocks got off to a weak start following a 4.4% drop in U.S. blue chips overnight.

Mitsuru Obe in Tokyo contributed to this story

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