Softbank makes bailout offer to WeWork, plans to oust its chairman

New York

SOFTBANK Group offered nearly US$10 billion on Monday to WeWork and its shareholders under a takeover plan that would keep the US office-space sharing startup afloat and lead to the exit of its chairman Adam Neumann, sources said.

WeWork could run out of cash as early as next month without this new financing, said these sources, after the company pulled plans in September for an initial public offering (IPO).

The IPO was ditched when investors questioned its large losses, the sustainability of its business model and the way it was being run by co-founder Mr Neumann, who gave up his chief executive title last month and is now board chairman.

WeWork owner The We Company's board will meet on Tuesday to evaluate SoftBank's offer against an alternative financing proposal from JPMorgan Chase & Co, said the sources.

JPMorgan faces challenges in putting together a debt package for WeWork, because it has not underwritten it and is trying to find banks and institutional investors to back it.

SoftBank has offered US$5 billion in new money to WeWork in the form of debt, the sources said; it is also proposing to accelerate a previous US$1.5 billion equity commitment to the company in the form of warrants that are due in April. This commitment was made in January at a US$47 billion valuation, but SoftBank is now seeking to renegotiate it at a valuation of US$8 billion, the sources added.

SoftBank is also proposing to launch a tender offer for up to US$3 billion to acquire WeWork shares from existing investors and insiders, including Mr Neumann. Based on the outcome of this, SoftBank could own 60 to 80 per cent of WeWork, but seek to avoid consolidating the company on its books, one source said.

SoftBank and its US$100 billion Vision Fund already own about a third of WeWork through previous investments totalling US$10.6 billion.

Mr Neumann could step down from The We Company's board as part of the deal with SoftBank and become an adviser, said the sources.

SoftBank chief operating officer Marcelo Claure will succeed him as chairman, the sources said.

SoftBank has lined up Mizuho Financial Group Inc as part of its syndication of the US$5 billion debt package, one of the sources said. The package comprises letters of credit for more than US$1 billion, as well as senior secured and subordinated bonds, the source added.

Mizuho declined to comment.

The We Company's seven-member board tasked two directors with representing the interests of all investors in the company by sitting on the special committee considering the financing plans, Reuters reported earlier this week. One is Bruce Dunlevie, who is a general partner at WeWork shareholder Benchmark Capital.

The other is Lew Frankfort, the ex-CEO of luxury handbag maker Coach. Artie Minson, previously WeWork's chief financial officer, and Sebastian Gunningham, previously a vice-chairman in the company, are now serving as its co-chief executives.

Facing a cash crunch, WeWork is seeking to slow down its expansion, reducing the number of new property leases it is taking on. The We Company's board has also agreed on a cost-cutting plan that includes layoffs, Reuters reported last week. The cuts will occur over the coming weeks, the sources added.

Mr Neumann's exit from The We Company's board would represent a dramatic fall from grace, given Wall Street's expectations this year that he would lead one of corporate America's most hotly anticipated stock market debuts. While his investors have been willing to entertain his eccentricities since he co-founded WeWork in 2010, his free-wheeling ways and party-heavy lifestyle came into focus once he failed to get the company's IPO underway.

During the attempts to woo IPO investors last month, he was criticised by corporate governance experts for arrangements that went beyond the typical practice of having majority voting control through special categories of shares; these included giving his estate a major say in his replacement as CEO. He had also entered several transactions with We Company, making the company a tenant in some of his properties and charging it rent. He also secured a US$500 million credit line from banks using company stock as collateral. REUTERS