SoftBank seeks to take control of WeWork

A SoftBank financing package that would give it control of WeWork would further sideline founder Adam Neumann.

SoftBank CEO Masayoshi Son. Picture: AFP

SoftBank Group has prepared a financing package that would give it control of WeWork and further sideline its founder Adam Neumann in exchange for relieving the shared-office start-up’s looming cash crunch, according to people familiar with the matter.

WeWork is racing to find a way to shore up its financing after its New York parent company We Co pulled its plans for an initial public offering and Mr Neumann resigned under pressure.

One potential solution is the SoftBank package. Another possibility: The board has tapped JPMorgan Chase & Co to look at ways for the company to raise billions in debt, and the bank is in the middle of meetings with investors about participating in a multibillion-dollar debt deal, people familiar with the company’s plans said.

“WeWork has retained a major Wall Street financial institution to arrange a financing,” a company spokesman said. “Approximately 60 financing sources have signed confidentiality agreements and are meeting with the company’s management and its bankers over the course of this past week and this coming week.”

SoftBank, which already owns one third of WeWork, is aiming to invest several billion dollars in new equity and debt, some of the people familiar with the matter said.

Should there be a deal with SoftBank, much of Mr Neumann’s voting power -- already diminished from its peak but still substantial -- would shift to the Japanese conglomerate, which would take a bigger role in turning around We’s operations, people familiar with the matter said.

The situation remains fluid and there is no guarantee a deal with SoftBank, a bank-debt agreement -- or some combination of the two -- will be reached.

Bleeding cash and shunned by mainstream investors, once-high-flying WeWork has become the poster child for start-up excess and has called into question the Silicon Valley practice of overlooking financial losses and unorthodox management styles in hopes of future riches.

We, valued at $US47 billion in a SoftBank investment early this year, had been preparing to go public before investors baulked at the company’s ballooning losses and atypical financial entanglements with Mr Neumann, who co-founded WeWork in 2010.

Its expected valuation plummeted to below $US20 billion, Mr Neumann resigned under pressure and the listing was scrapped, casting uncertainty over the future of the company, the largest commercial tenant in many cities.

Start-up excess: WeWork founder Adam Neumann. Picture: AP

Details including the exact amount of SoftBank’s potential investment couldn’t be learned, but executives at SoftBank figure We needs at least $US3 billion to get through the next year, people familiar with the discussions said. The price SoftBank would pay for We’s shares would be much lower than where it invested in January and its valuation could sink below $US10 billion, some of the people said.

Some of SoftBank’s cash could also be used by Mr Neumann to repay hundreds of millions of dollars of personal bank loans, one of the people said.

Meanwhile, SoftBank chief executive Masayoshi Son has tapped Marcelo Claure, a top SoftBank executive, to work with We’s new co-CEOs, Artie Minson and Sebastian Gunningham, on a turnaround plan, according to a person familiar with the matter.

Since Mr Neumann’s departure, Mr Claure and about 20 additional SoftBank employees have been analysing the company’s leases and buildings around the world, the person familiar said.

SoftBank already holds two seats on We’s seven-member board. A pair of executives tied to the conglomerate joined after SoftBank committed $US4.4 billion to the company in 2017.

SoftBank has hired lawyers from Weil, Gotshal & Manges, a corporate law firm known for its financial restructuring specialists, to help sort through We’s finances and advise on the potential investment, some of the people said.

After Mr. Neumann’s September 24 departure, We’s board tapped JPMorgan to assemble a fresh debt package, people familiar with the matter said. The terms of the arrangement don’t require the bank to backstop the deal with its own balance sheet, but only to try its best to sell the debt to its clients.

Had We moved forward with an IPO that raised at least $US3 billion, the company would have unlocked a package of up to $US6 billion in funding through a debt deal.

With Liz Hoffman and Eliot Brown

Wall Street Journal