By Associated Press
NEW YORK — WeWork said late Tuesday it has accepted a financial rescue package that hands control of the company to its top investor and pushes aside co-founder Adam Neumann and his grandiose vision of changing the world through communal working.
Japanese tech conglomerate SoftBank /zigman2/quotes/207303954/delayed JP:9984 +2.27% will take a controlling stake in the company under the deal to infuse WeWork with more than $5 billion in urgently needed capital, along with a tender offer of up to $3 billion for existing shareholders, WeWork said in a statement, giving SoftBank control of about 80% of the company.
The announcement did not mention Neumann’s payout, but the Wall Street Journal reported he will walk away with $1.7 billion to sever most of his ties to the company. Neumann will become a “board observer,” WeWork said, and SoftBank Chief Operating Officer Marcelo Claure will become WeWork’s executive chairman.
SoftBank Chief Executive Masayoshi Son said that he still believes WeWork is “at the forefront” of a revolution in the way people work. “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,” he said in a statement.
WeWork has been scrambling for cash since its attempt to enter the stock market floundered last month, a stunning fall from grace for a company that has until recently been considered one of the most highly valued start-ups in the U.S.
The deal throws WeWork a lifeline as it attempts to turn around a money-losing business model that had repelled potential Wall Street investors. But it comes at a steep cost for SoftBank, which already owns one-third of WeWork and has sunk $10 billion into the company.
SoftBank’s takeover values WeWork at $8 billion, a fraction of the $47 billion valuation SoftBank had assigned the company in its last round of financing in January.
The contours of the deal mean SoftBank now has more money invested in WeWork than the company is worth.
“This is where the math gets confusing because they’ve put in more money than the valuation of the company,” said Larry Perkins, founder and CEO of SierraConstellation Partners, a management advisory firm that specializes in helping companies navigate difficult turnarounds. “That would be the question going forward: Is this good money after bad money or a preservation of their investment?”
SoftBank will pay Neumann $1 billion for his shares in the company and extend him $500 million in credit to help him repay a loan from J.P. Morgan., the Journal reported. SoftBank also will pay Neumann a $185 million consulting fee.
Neumann stepped down as CEO under pressure last month, but he retained a controlling share of the company, making his approval necessary for any deal. He will step down from WeWork’s board of directors but retain a small stake in the company.
“He gets a golden helicopter that lets him get out of this, and that is just remarkable,” Perkins said.
The SoftBank deal eases WeWork’s immediate cash crunch, but the company faces a long road ahead to address its deeper challenges, namely finding ways to curtail its staggering spending.
WeWork mostly makes money by leasing buildings and subdividing them into office space that it sublets on a short-term, flexible basis.
Since the failed IPO, WeWork has taken steps to shore up that core business and move away from the meandering direction it had taken under Neumann.