No kidding! If you have been following my posts you would already anticipate that this bailout would not happen.... Aivars Lode
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 outbreakempties 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.
SoftBank shares tumbled Wednesday, falling 10% to their lowest levels since 2016—far outpacing the 1.6% fall in Japan’s benchmark Nikkei 225 index.
Falling share prices, which lower the value of SoftBank’s massive investment holdings, are combining with WeWork’s pricey bailout and a recently announced $4.8 billion share buybackplan to weigh on SoftBank’s balance sheet. Credit-rating firm S&P Global Inc. cited all those factors when it announced Tuesday that it was cutting SoftBank’s credit outlook to negative. S&P noted that unveiling a share buyback in the midst of a stock-market plunge raised questions about SoftBank’s commitment to financial soundness.
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.
By Liz Hoffman and Eliot Brown - Wall Street Journal
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