Neumann could be cornered as SoftBank has second thoughts about WeWork

Billionaire Masayoshi Son, chairman and chief executive officer of SoftBank Group Corp., looks on during a news conference in Tokyo, Japan, on Wednesday, Feb. 8, 2017. Photographer: Kiyoshi Ota/Bloomberg

WeWork founder Adam Neumann’s past shenanigans are catching up with him, and SoftBank Group Corp. seems delighted.

Probes by the U.S. Justice Department and the Securities and Exchange Commission have given SoftBank an excuse to go back and renegotiate a deal with existing shareholders of The We Company, of which Neumann was among the largest, The Wall Street Journal and Bloomberg News reported late Tuesday.

SoftBank is unlikely to give up on the troubled office-rental company, because it can’t. Which puts the ball in Neumann’s court.

The $3 billion deal that the Japanese company says it could walk away from, because of the regulatory investigations, is just one part of a package totaling close to $8 billion put together to bail out the startup after its offering plans were scrapped and value massively written down. Among the items in its Oct. 23 funding announcement is the acceleration of an existing $1.5 billion commitment and over $5 billion in debt financing. The tender offer for shares was a big deal because that’s what helped SoftBank boost its stake from 29% to 80%.

It also allowed SoftBank chairman Masayoshi Son to install his own executive team at WeWork — Chairman Marcelo Claure is SoftBank’s chief operating officer —and start calling the shots on everything from employee layoffs to unwinding earlier acquisitions.

If the purchase of those existing shares doesn’t go through, then Neumann gets to hold on to his stake in a company worth pennies to the dollar of where it was a year ago. SoftBank may not even have control, limiting its ability to steer WeWork to profitability.

But SoftBank has to do something. Last week it announced plans to buy back $4.8 billion shares, an opportunistic move aimed at propping up the stock and alleviating some of the pressure put on by activist investor Elliott Management Corp. That move spurred S&P Global Ratings to put SoftBank on negative outlook, the first step before actually cutting its credit rating. Its stock dropped as much as 12%, taking the decline over the past month to more than 40%.

At the same time, the global economic meltdown caused by the Covid-19 pandemic has made the Vision Fund’s portfolio of unprofitable startups look shaky. These companies survive on continuous streams of cash until they can eventually turn a profit, and that lifeline may get cut in a credit crunch.

Walking away from the tender offer is entirely possible. This would be the nuclear option in the sense that doing so amounts to mutually assured destruction.

Without purchasing that stake, SoftBank would be left sharing control with the same executive team and investors who oversaw WeWork’s early blunders — making it tough to effect the wholesale changes needed for a turnaround. Yet SoftBank has already plowed so much cash into the business that WeWork’s final demise would cause further pain not just to investors, but Son’s own reputation as a savvy and trustworthy investor.

Neumann could hold his ground and insist on the originally agreed price. But these regulatory investigations seem targeted at him, and actions that took place under his watch, including concerns over self-dealings, disclosures and conflicts of interest. That gives SoftBank the opportunity to point the finger not only at Neumann but at existing shareholders who share the responsibility of not exercising enough oversight.

That means that if the tender offer does fail, SoftBank can put the blame on the counterparty with a reminder that there won’t be a better offer elsewhere. In the current meltdown, Son is in a position to show what it would look like if “We” are not in this together.

Bloomberg

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.