Softbank Group Corp has scrapped an agreement to spend US$3 billion to buy WeWork stock from former chief executive officer Adam Neumann and other shareholders, despite threats of legal action from some members of its board.
Softbank had agreed to buy the shares from Neumann, Benchmark Capital and others as part of a bailout package last year, but notified stockholders in the middle of last month that conditions for the deal had not been met.
Yesterday, after the deal’s deadline passed, Softbank confirmed it would end the offer, citing five conditions that were not satisfied by the closing date.
“Softbank remains fully committed to the success of WeWork and has taken significant steps to strengthen the company since October, including newly committed capital, the development of a new strategic plan for WeWork and the hiring of a new, world-class management team,” Softbank chief legal officer Rob Townsend said.
“The tender offer was an offer to buy shares directly from other major stockholders and its termination has no impact on WeWork’s operations or customers,” he said.
Softbank shares rose 2.5 percent while the broader Japanese market fell.
A WeWork committee of two independent directors said they disagreed with the decision and suggested there might be legal action.
“The Special Committee is surprised and disappointed at this development, and remains committed to reaching a resolution that is in the best interest of WeWork and its minority shareholders, including WeWork’s employees and former employees. The Special Committee will evaluate all of its legal options, including litigation,” the committee, made up of Benchmark’s Bruce Dunlevie and another director, Lew Frankfort, said in an e-mailed statement.
The share purchase was hammered out in October last year as part of Softbank’s rescue of WeWork, after the co-working company’s failed initial public offering left it weeks away from running out of money.
In the deal, the Japanese conglomerate would have taken a stake of almost 80 percent in the company and buy US$3 billion in shares from investors as well as current and former employees.
Neumann, ousted in the deal, was set to sell up to US$970 million in shares. The generous exit package angered many of his employees, thousands of whom had their jobs eliminated in the following months as WeWork parent We Co tried to cut its expenses.
WeWork signs long-term leases with landlords around the world and then rents that space to smaller companies and freelance workers, a business that has been particularly vulnerable to the coronavirus and economic slowdown.
In a letter to bondholders, Softbank said it did not expect to hit its financial targets for this year.
“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,” Townsend said.
In the past few weeks, the shareholder buyout deal has become increasingly contentious.
Softbank sent the letter to WeWork investors saying it could withdraw from the agreement if certain conditions were not met by the deadline.
Softbank cited regulatory concerns and a handful of government investigations into WeWork, including from the US Securities and Exchange Commission and the US Department of Justice.
The two WeWork independent board directors responded, saying they would consider legal action if Softbank pulled out.
“Its excuses for not trying to close are inappropriate and dishonest,” a spokeswoman for the directors had said in a statement.
Softbank and its affiliates have committed more than US$14.25 billion to WeWork to date, including US$5.45 billion since October, the company said in its statement.
WeWork had US$4.4 billion in pro forma cash and cash commitments at the end of last year, Softbank said.
Separately, Softbank said it completed the sale of its US unit Sprint Corp to T-Mobile US Inc. The deal removes about US$40 billion in net debt from the Japanese conglomerate’s balance sheet.
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