SoftBank terminates $3bn WeWork tender offer

SoftBank has pulled out of a planned $3 billion purchase of WeWork stock, a move that is expected to spark litigation by the lossmaking property group’s co-founder and one of Silicon Valley’s most prestigious venture capital groups, according to people briefed on the matter.

The $3 billion share tender was agreed last year as part of a multibillion-dollar rescue package that SoftBank put in place as WeWork was on the brink of insolvency. The tender offer was set to provide a lucrative payout to early backers of the company including Benchmark Capital and Adam Neumann, WeWork's former chief executive.

Benchmark, Mr Neumann and other investors were expected to sue over the collapse of the deal, according to people briefed on the matter.

SoftBank said in a statement on Thursday that it had decided to pull out after WeWork failed to meet a set of conditions behind the deal.

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“Given our fiduciary duty to our shareholders, it would be irresponsible of SoftBank to ignore the fact that the conditions were not satisfied and to nevertheless consummate the tender offer,” said Rob Townsend, SoftBank’s chief legal officer.

SoftBank added that it remained “fully committed” to the US group’s success and that its decision would not have any impact on WeWork’s operations.

Lawyers for Mr Neumann, who had the option to sell nearly $1 billion of stock in the deal, were informed of the decision on Wednesday, one of the people said. SoftBank is expected to notify other investors who had planned on selling their shares that it has withdrawn from the deal after the tender offer lapsed at about midnight.

SoftBank’s withdrawal marks the latest reversal for WeWork, which at one point was the most highly valued privately held group in the US. WeWork burnt through billions of dollars of cash as it expanded around the world under Mr Neumann, opening locations in more than 100 cities. Its attempt to go public last year failed, as investors balked at its huge losses and a series of deals that benefited Mr Neumann personally.

The decision to walk away from the $3 billion share purchases will also take away a much needed source of cash from WeWork. SoftBank had agreed to provide $1.1 billion of debt to the company as part of the transaction, but only if it completed the tender offer.

SoftBank told WeWork shareholders last month it could walk away from the tender, citing regulatory investigations into the company, pending litigation and WeWork's inability to finalise a joint venture in China as key conditions.

On Thursday, the Japanese group, which has committed more than $14.3 billion to WeWork to date, also cited restrictions against the company and its operations due to measures taken by governments worldwide to deal with the coronavirus outbreak.

The Japanese telecoms-to-technology company has debated for weeks over whether to back out of the tender, bringing in outside legal counsel to be certain its reading of the agreement with WeWork would win out in a courtroom battle, one person added.

A special WeWork board committee, led by Benchmark’s Bruce Dunlevie and Lew Frankfort, responded last month with a public attack against SoftBank, calling the threatened move “inappropriate and dishonest”. The special committee, which is advised by the law firm Wilson Sonsini, said on Wednesday that it would “evaluate all of its legal options, including litigation”.

Benchmark was expected to sell roughly $350 million of stock after tendering its full stake of close to $600 million, according to people briefed on the matter and documents reviewed by the Financial Times.

Early WeWork employees, who were expected to reap hundreds of millions of dollars from the tender offer, had also expressed anger at SoftBank’s threat to back away from the deal.

Marcelo Claure, SoftBank’s chief operating officer who was appointed executive chairman of WeWork last October, had held discussions with Sandeep Mathrani, WeWork’s chief executive, about compensating the company’s employees who had tendered. No deal has been reached, according to a person familiar with the matter.

WeWork and Benchmark declined to comment on the news, which was earlier reported by Bloomberg. Mr Neumann could not immediately be reached for comment. – Copyright The Financial Times Limited 2020