WeWork founder Adam Neumann. Picture: REUTERS/EDUARDO MUNOZ
WeWork founder Adam Neumann. Picture: REUTERS/EDUARDO MUNOZ

New York — SoftBank is taking control of WeWork, part of a rescue financing plan that will see founder Adam Neumann depart the company’s board, according to people familiar with the matter.

Neumann is expected to sell a little under $1bn of stock to the Japanese investment firm as part of the deal, said the people, who asked to remain anonymous because the agreement has not been announced. He will remain as a board observer and can assign two board seats, one of the people said. Neumann will also get a roughly $185m consulting fee.

SoftBank is WeWork’s largest investor, and had committed more than $10bn to the company even before the bailout

WeWork, reeling since it scrapped a planned public offering in September, had been considering two separate rescue packages from SoftBank and JPMorgan Chase, to keep it from running out of money as soon as November. The deal, which values the office-sharing startup at about $8bn, marks a shocking fall from grace for a business emblematic of the latest tech boom that had been valued as recently as January at $47bn.

SoftBank and JPMorgan declined to comment. WeWork could not immediately be reached. Dow Jones earlier reported details of the deal.

Buying shares

SoftBank’s stock purchase from Neumann is part of a broader offer to buy as much as $3bn from existing shareholders, one of the people familiar with the matter said. The investment firm will also provide Neumann with a $500m credit line, secured by some of his stock.

A $500m loan to Neumann extended by JPMorgan, UBS and Credit Suisse will be repaid, one of the people said.

In addition to the proposal from SoftBank, JPMorgan had been pitching a $5bn debt package for WeWork. Last week, the company had been leaning towards the bank’s plan, because it would not dilute existing shareholders or force the startup to cede control.

But disagreements over the valuation — JPMorgan’s plan had pegged WeWork’s valuation at about $5bn — pushed the company towards SoftBank, which was willing to increase its equity stake and provide a payout to Neumann, according to a person familiar with the situation.

SoftBank is WeWork’s largest investor, and had committed more than $10bn to the company even before the bailout. As its estimated valuation cratered, WeWork in September ousted Neumann as CEO and, eventually, pulled its IPO paperwork.

Cancelled IPO

The cancelled public offering also left WeWork, which lost $900m in the first half of the year, without a crucial source of funding: a $6bn loan that had been contingent on a successful entrance into the public market.

A WeWork office in New York City, New York, the US. Picture: TIMOTHY A CLARY / AFP
A WeWork office in New York City, New York, the US. Picture: TIMOTHY A CLARY / AFP

SoftBank’s bailout of WeWork is happening at a particularly sensitive time for the Japanese investment powerhouse. SoftBank is looking to raise funding for a second version of the Vision Fund, its $100bn tech fund that reshaped the way the Silicon Valley startup world works by dint of its sheer size. Today, investors are expressing hesitance about the fund’s second iteration, which SoftBank hopes to make even bigger than the first.

In a recent interview with the Nikkei Business magazine, Son said he was “embarrassed and impatient” with his recent track record. WeWork is not the only big bet for SoftBank that went south. It was also the largest investor in Uber Technologies, whose stock price is down about one-third since its May IPO.

Bloomberg