SoftBank in talks to take control of WeWork amid cash crunch

Japanese group prepares financing package for property group

 

SoftBank is in talks to take control of WeWork as the lossmaking property group faces a cash crunch that threatens its solvency, according to multiple people briefed on the matter.

The Japanese telecoms-to-technology group has readied a financing package to pump several billion dollars into WeWork parent the We Company. The proposed deal would give SoftBank more than a 50 per cent stake in the company, but it was unclear if the group – which is WeWork’s largest backer – would repurchase all of its outstanding stock.

The move would further sideline WeWork’s controversial co-founder Adam Neumann weeks after he was forced to give up the chief executive role following the company’s decision to abort its initial public offering.

SoftBank’s chief executive Masayoshi Son has been trying to gain full control of the company in an effort to salvage an investment that has already cost the Japanese telecom group and its Saudi Arabia-backed Vision Fund more than $10bn.

It was unclear if a deal between SoftBank and WeWork could be clinched, and the people said it could yet fall apart. If the company is unable to raise new financing before the end of November, the people said it could face something that executives within WeWork never thought was possible just weeks ago: bankruptcy.

Bankers at JPMorgan Chase, which advised WeWork on its now abandoned IPO, have been at work to drum up cash for the company over the past several weeks, as the Financial Times first reported last week. The team at JPMorgan is still at work on a financing plan, which could yet solve WeWork’s financing crunch.

But it has become clear that public markets, which are critical funding sources for junk-rated groups, would charge WeWork an exorbitant fee if the property group sought to raise new debt or a loan publicly. The company’s corporate bonds now trade with a yield above 11 per cent — far higher than the 7.875 per cent financing cost WeWork locked in last year.

Some of the Wall Street titans that had backed WeWork are stepping aside in a sign of the risk in lending to the property group. Goldman Sachs, which was a co-lead on the IPO and was among a number of lenders on a $6bn loan to WeWork that has since collapsed, is so far not planning to extend further financing.

There is a chance that SoftBank will make an investment along with an additional financing package arranged by JPMorgan, said people briefed about the matter.

“WeWork has retained a major Wall Street financial institution to arrange a financing,” a company spokesman said. “Approximately 60 financing sources have signed confidentiality agreements and are meeting with the company’s management and its bankers over the course of this past week and this coming week.”

SoftBank owns roughly 29 per cent of WeWork, and was instrumental to WeWork’s rapid expansion – the property group has opened offices in more than 110 cities – as well as its sky-high valuation.

A SoftBank investment this year pushed the price tag on WeWork to $47 billion. But the group’s enthusiasm was not matched by the broader investing public. Bankers failed to drum up enough support to complete the IPO when they tested a valuation as low as $15 billion, with investors raising concerns over corporate loans offered to Mr Neumann as well as his personal share sales and control of the group. SoftBank declined to comment. – Copyright The Financial Times Limited 2019