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WeWork board factions head for clash over new directors

WeWork board factions head for clash over new directors

4 -min read
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4 -min read
Listen to this article

[DELAWARE] WeWork's board is scheduled to vote on appointing two new directors on Friday, a critical step in a clash between shareholder SoftBank Group and a rival faction at the troubled co-working startup.

A lawyer for WeWork told Delaware Chancery Court Judge Andre Bouchard in a letter that the company plans a May 29 meeting to fill two empty independent director seats. The nominees are Alex Dimitrief, General Electric's ex-top lawyer, and Frederick Arnold, the former chief financial officer for Convergex Group.

SoftBank and the rival board faction are feuding over the Japanese conglomerate's decision to scrap a US$3 billion deal to buy stock from WeWork's ex-chief executive officer Adam Neumann and other shareholders. SoftBank agreed to the purchase last year as it bailed out the struggling startup, but then notified stockholders in March that some of that deal's conditions hadn't been met.

Two independent WeWork directors then sued SoftBank for not following through on the deal. One of them, Bruce Dunlevie, is a partner at the venture firm Benchmark Capital, which had planned on selling WeWork shares to SoftBank as part of the agreement.

The new directors are expected to butt heads with the pair who filed the suit. The incoming directors will be on a special board committee tasked with deciding whether Mr Dunlevie and Lew Frankfort can properly represent the company in the Softbank suit.

In a court hearing today, Mr Bouchard rejected Mr Dunlevie and Mr Frankfort's bids to block WeWork from adding new directors and creating a new board committee. Mr Dunlevie and Mr Frankfort made up the earlier special committee that made the decision to sue.

"We believe SoftBank has no basis to question the special committee's authority to bring this action and we are pleased by the court's recognition that any effort by SoftBank to challenge that authority must be presented" to Mr Bouchard, a spokesperson for Mr Dunlevie and Mr Frankfort said Wednesday.

WeWork officials countered they were simply trying to follow the best corporate governance practices by pushing forward with the new board appointees. "The court's decision today allows that process to go forward," a Softbank spokesperson said in an emailed statement.

In their suit, Mr Dunlevie and Mr Frankfort contend SoftBank reneged on promises to "use its reasonable best efforts to consummate" the stock-purchase agreement because of "buyer's remorse".

They also noted the agreement doesn't contain a so-called "material adverse effect" provision or similar termination right that is common in such deals. Two years ago, a Delaware judge found such a provision permitted Germany's Fresenius SE to walk away from its takeover of US rival generic drugmaker Akorn.

In a message to shareholders in March, Softbank cited nearly a half-dozen conditions that WeWork officials hadn't met as the basis for pulling out of purchase, including its failure to renegotiate some leases in the wake of the economic havoc caused by the Covid-19 pandemic.

Mr Neumann – who would have reaped the biggest windfall from the deal – filed his own suit earlier this month claiming SoftBank is relying on legally faulty pretexts to scuttle the deal.

The dispute is among several busted-deal cases tied to Covid-19 that landed in Delaware's business court. The state is the corporate home to more than half of US public companies and more than 60 per cent of Fortune 500 firms. Chancery judges hear cases without juries and can't award punitive damages.

Mr Dunlevie's and Mr Frankfort's suit is The We Company v SoftBank Group Corp, No 2020-0258, Delaware Chancery Court (Wilmington). Mr Neumann's case is Neumann v SoftBank Group Corp, Delaware Chancery Court.

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