SoftBank announced on Wednesday it will pump billions of dollars into struggling office-sharing startup WeWork, in a deal that will see co-founder Adam Neumann taking a huge payout and exiting the board.
The package, which involves new financing, speeds up already pledged money and includes a new tender offer for existing shareholders, is worth a total of US$9.5 billion.
Neumann, who has already been forced to step down as chief executive, will exit the board for an “observer” role, but is said to be receiving more than $1.5 billion as he departs.
SoftBank Group’s Marcelo Claure will take over as executive chairman of the board.
The agreement caps a turbulent period for the once-vaunted startup, which was valued by some at about $47 billion at the start of the year and represents a significant shot in the arm as the company hemorrhages money.
“SoftBank has decided to double down on the company by providing a significant capital infusion and operational support,” SoftBank Chairman Masayoshi Son said in a statement.
“The new capital SoftBank is providing will restore momentum to the company and I am committed to delivering profitability and positive free cash flow,” added Claure in the statement.
The package includes $5 billion in new financing, as well as a commitment to speed up an existing pledge of $1.5 billion.
SoftBank will also launch a tender offer of up to $3 billion for existing shareholders, at $19.19 a share, expected to start in the fourth quarter of 2019.
An 80% stake
SoftBank, which already held 29% of WeWork, will increase its stake to “approximately 80%,” but said this did not constitute taking control.
It said it would not hold a majority of voting rights at any general stockholder meeting or board of directors meeting and “does not control the company.”
“WeWork will not be a subsidiary of SoftBank. WeWork will be an associate of SoftBank,” the statement said.
SoftBank Group shares closed down 2.51% at 4,190 yen in Tokyo, though they were off lows seen earlier in the day.
The plan provides much-needed funds for WeWork, which sources have said must raise at least $3 billion to cover its financing needs through the end of the year.
A source said the deal will give Neumann $1 billion for his SoftBank shares, $500 million for reimbursements of personal debts and $185 million in consulting fees.
He will also maintain a small stake in the company, the source added.
The deal follows months of tumult for WeWork, which has gone from star status as one of the world’s most highly rated startups to a case study in overvaluation for some analysts.
Neumann stepped down as chief executive in September as he faced questions over perceived self-dealing between his personal assets and WeWork, and over unconventional personal conduct, including drug use.
And in late September, the firm canceled a plan to go public amid worries about its long-term profitability prospects.
“Hopefully, this marks the beginning of the end of using IPOs on hyped-up loss-making unicorns as a profit-taking opportunity before the music stops,” wrote Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA, in a note.
Richard Windsor, founder of Radio Free Mobile, said WeWork amounts to a “searing indictment of Softbank’s valuation and screening methodology which needs to shift towards being based on fundamentals rather than blue sky.”
WeWork, which launched in 2010, has touted its model as revolutionizing commercial real estate by offering shared, flexible workspace arrangements, and has operations in 111 cities in 29 countries.
In some cities, it is one of the major landlords, but its model of offering flexible, short-term leases is viewed by some as less of a selling point and more of a liability for investors.
The saga has been a cloud hanging over SoftBank’s Son, but he has remained steadfastly committed to the firm, insisting its challenges are surmountable.
“It is not unusual for the world’s leading technology disruptors to experience growth challenges as the one WeWork just faced,” Son said in the SoftBank statement Wednesday.
“We remain committed to WeWork, its employees, its member customers and landlords.”