SoftBank has dropped its $3.3 billion investor plan for embattled workspace-sharing company WeWork. The multinational conglomerate had agreed last fall to buy an enormous amount of stock from founder Adam Neumann and other major shareholders as part of a drastic effort to restructure and save the company. The deal had an April 1 closing date; now it’s off the table completely.
SoftBank cited five conditions that were not satisfied by the closing date as the reason for the deal’s retraction. Those conditions included obtaining antitrust approvals and complete takeovers of joint ventures in Asia. SoftBank also spoke to ongoing investigations by the Justice Department, the Exchange Commission, and attorneys general in New York and California.
The company says it notified stockholders in mid-March that these conditions had not been met. Nonetheless, WeWork’s committee in charge of the deal says it was caught off-guard by the decision. Without this major bailout, WeWork is in even deeper trouble than previously thought. More than anything else, it’s bad news for the company’s top investors.
“The Special Committee is surprised and disappointed at this development, and remains committed to reaching a resolution that is in the best interest of WeWork and its minority shareholders, including WeWork’s employees and former employees,” the committee said in an emailed statement.
The committee also stated that it would be evaluating all legal options including the possibility of litigation. A spokeswoman for the directors called SoftBank’s reasoning “excuses” that are “inappropriate and dishonest.”
Could this be the end of WeWork? — That’s the question everyone’s asking, and while there’s no definite answer right now, the company’s future is looking bleaker than ever.
Last year was a very dark time for WeWork. After losing nearly $2 billion in 2018, the company went into the new year with big plans of filing an IPO. Analysts quickly voiced misgivings over the sustainability of the company’s business models and its corporate governance standards. WeWork’s initial valuation of $47 billion dropped dramatically to just $10 billion by September 2019. Eventually, the IPO was delayed and then pulled completely as it became clear the company was little more than an elaborate house of cards.
SoftBank is still helping WeWork, though — This deal was separate from SoftBank’s bailout plan for WeWork, which includes $5 billion in financing. It’s not that SoftBank has dropped the company completely; rather, it’s pulled a sizable amount of support meant for shareholders. The conglomerate planned to buy nearly $1 billion in WeWork shares from founder Adam Neumann to expunge him from the business, as well as roughly another $2 billion in sales from other top investors. Those investors are the ones who will be hit hardest by SoftBank’s change of heart.
The deal also promised another $1 billion in debt financing for WeWork — that part of the agreement is still up in the air, according to a person familiar with the matter.
As a business built on shared working spaces, WeWork attendance has likely been hit hard by COVID-19 social distancing measures, too. The company hasn't said much about it, but we know at least a few of its offices have seen coronavirus cases, and the longer the health crisis persists, the greater the financial toll on the already beleaguered company.
SoftBank has until now been WeWork’s greatest safety net. The company has committed more than $14.25 billion to WeWork to date, so it's got plenty of motivation to try and salvage it. Though SoftBank is still backing WeWork right now, this move could be a dark portent for the relationship between the two companies in the future, and for WeWork's long-term prospects of survival, let alone resuscitation.