SoftBank’s takeover of WeWork lets Neumann exit as a billionaire

23 Oct 2019

A WeWork office. Image: Dmitriy Nushtaev/Unsplash

This is the latest twist in a story that involved a cereal box full of weed, Gwyneth Paltrow’s cousin, one half of Run DMC and thousands of potential job losses.

This week kicked off with the news that SoftBank would be taking control of WeWork, a business previously valued at $47bn but that is now worth as little as $7.5bn.

It’s the latest twist in a story that has involved a cereal box full of weed, an ill-timed performance by one half of Run DMC, Gwyneth Paltrow’s cousin firing people because she ‘didn’t like their energy’ and a lot of tequila shots. Last month, there were rumours of 2,000 to 5,000 possible job losses at the flexible workspace provider.

At the centre of all of this is Adam Neumann, former CEO of WeWork, who voluntarily stepped down from his role as the company announced plans to rethink an IPO that it had planned before WeWork became embroiled in controversy.

SoftBank’s intervention

SoftBank, the Masayoshi Son-led investment group that poured around $10.65bn into WeWork before all of the events above unfolded, has decided that the most cost-effective solution to this situation is to spend around $5bn on additional funding and to buy out existing shares.

Before this plan was announced, it was estimated that SoftBank would need WeWork to be valued at $24bn before it could break even on the massive investment it has made into the property company.

On Monday (22 October), CNBC said that Neumann’s stake would fall below the double digits, while the company’s valuation will be reduced to between $7.5bn and $8bn. SoftBank will then own as much as 70pc of WeWork.

According to CNBC, SoftBank will be making up to a $3bn tender offer, along with $1.5bn acceleration of equity it has already committed and $5bn in syndicated debt. This is all being done in the hopes of making WeWork profitable as soon as possible.

Making Neumann a billionaire

Following this news, Forbes reported that SoftBank’s intervention could allow Neumann to walk away as a billionaire. The publication estimated that Neumann would be paid $1bn for the bulk of his WeWork stock, as well as $185m in consulting fees and a $500m credit line to pay back existing loans.

The $500m given to Neumann from SoftBank will prevent him from going into default with his outstanding JPMorgan loans. According to the Wall Street Journal, JPMorgan had also made an offer to take over WeWork, but it was less favourable than the agreement the company reached with SoftBank.

This morning, it was reported that WeWork has accepted SoftBank’s rescue offer and Neumann has been given $1.7bn to leave his  embattled company.

Scott Galloway, a commentator who was sceptical of WeWork from early on, pointed out that Neumann will be getting around $850,000 for each of the 2,000 employees that WeWork is expected to lay off.

However, it is reported that these staff members have not lost their jobs yet because the company can’t afford severance pay.

‘The vision remains unchanged’

In a statement about the new funding infusion, WeWork said that it will “not be a subsidiary of SoftBank. WeWork will be an associate of SoftBank.”

Still referring to WeWork as a technology company after many critics have pointed out that it is better categorised as a property company, Son commented: “SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work. WeWork is at the forefront of this revolution.

“It is not unusual for the world’s leading technology disruptors to experience growth challenges as the one WeWork just faced. Since the vision remains unchanged, SoftBank has decided to double down on the company by providing a significant capital infusion and operational support. We remain committed to WeWork, its employees, its member customers and landlords.”

A WeWork office. Image: Dmitriy Nushtaev/Unsplash

Kelly Earley was a journalist with Silicon Republic