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WeWork troubles deepen as SoftBank pulls $3 bln tender offer

"Timmy Toutcher" (2020-04-12)

WeWork founder Adam Neumann (pictured in January 2019) will not be receiving a nearly $1billion exit package

WeWork founder Adam Neumann won't be getting nearly $1billion to walk away from his company after Japanese tech giant SoftBank Group pulled its $3billion bailout offer for the troubled office-sharing startup that is now in legal and financial turmoil. 

SoftBank said it has terminated its tender offer for additional WeWork shares agreed last year with shareholders, drawing threats of legal action and plunging the floundering office space company further into crisis.

The tech investment giant said in statement that given its duty to its shareholders it could no longer proceed with the deal, citing criminal and civil probes into the startup, WeWork's failure to restructure a joint venture in China and the impact of the coronavirus pandemic.

A special committee of WeWork's board said it was disappointed and is considering 'all of its legal options, including litigation.'

SoftBank's decision to rescind the offer means the Japanese firm is no longer obligated to proceed with a further $1.1billion in debt financing for WeWork.

But the Tokyo-based firm said on Thursday that it 'remains fully committed to the success of WeWork.' 

'The termination of the tender offer will have no impact on WeWork's operations, customers, five-year business and cara menghasilkan uang di internet strategic plan, or the vast majority of WeWork's current employees,' SoftBank, WeWork's largest shareholder, said in a statement. 

'WeWork has made tremendous operational progress over the past six months.' 

WeWork, which was in dire financial straits before SoftBank pulled out of the agreement, has been under more pressure due to the coronavirus pandemic as its shared office spaces are abandoned worldwide over health concerns. 

SoftBank Group, the Japanese tech giant, announced that it was pulling its $3billion tender offer for WeWork. SoftBank Group CEO Masayoshi Son is seen above in Tokyo in November





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But the company said it has enough cash on hand to weather the storm after an infusion of liquid by SoftBank.

In a March 26 letter to investors, WeWork wrote that it has 'the financial resources and liquidity to execute our plan through 2024, including managing the near-term challenges and volatility presented by Covid-19.' 

Nonetheless, the aborted share buyback underscores the depth of the disarray at WeWork, which is undergoing a drastic restructuring and whose earnings are at risk as many countries impose orders to stay at home due to the pandemic.

'WeWork is in real trouble and SoftBank's withdrawal from the share purchase worsens the situation materially,' Richard Windsor, an independent analyst, wrote in a note.

The startup, which lost $1.25billion in the third quarter, told investors last week that it had $4.4billion in cash and cash commitments and would be able to weather the economic downturn.

The tender offer, which would have mostly benefited a select group of shareholders including ousted co-founder Neumann, had been agreed in October as part of bailout plan by SoftBank after WeWork's IPO plans flopped.

Neumann was due to receive an exit package that included $975million in exchange for his shares of the company. 

Investors had been concerned about its losses and a business model that involves taking long-term leases and renting out spaces for a short term.

In November, sources said the New York State Attorney General was investigating WeWork, examining whether Neumann, indulged in self-dealing to enrich himself.

WeWork Co-Founder and CEO Adam Neumann and Rebekah Paltrow Neumann

In September, Neumann stepped down after it was revealed he used company stock to secure a $500million personal loan prior to its initial public offering. 

WeWork's Artie Minson, formerly co-president and chief financial officer, and Sebastian Gunningham, formerly vice chairman, became joint CEOs of the company. 

Neumann stayed on the board of the company as non-executive chairman.

Neumann had been facing a coup by investors unhappy with the startup's widening losses and his grip over the firm. 

Plus, investor skepticism about WeWork's business model mounted after the company delayed a planned IPO earlier a few weeks prior.

We, the firm's parent company, had started the year with a $47 billion valuation in January, only to see it drop to as low as $10 billion just before the postponement.

Neumann's ouster also comes after he was alleged to have smoked marijuana with friends on a private jet flight from New York to Israel in the summer of 2018, according to The Wall Street Journal.

The plane's operator, after discovering pot concealed in a cereal box for the return flight, was so upset that Neumann was ditched and had to find another flight back, the Journal reports.

In 2019, Neumann was sued for gender discrimination by his former chief of staff, Medina Bardhi.

She alleged that she asked Neumann not to smoke marijuana in an enclosed cabin aboard a plane because she was pregnant at the time. 

After being informed of her pregnancy, Neumann allegedly disparaged Bardhi and replaced her with a male who was paid 'nearly three times her salary,' according to the lawsuit. 

Bardhi alleged that she was forced to leave the company. She also alleged that WeWork routinely discriminates against women.

'Female employees are demeaned for taking maternity leave, excessive alcohol consumption fuels offensive sexual conduct towards women, and where it is common for women to be paid less than their male colleagues,' according to the lawsuit. 

The company told the New York Post that it 'intends to vigorously defend itself against this claim.' 

WeWork grew rapidly over the years as its revenue reached $1.8billion in 2018. 

But its losses have mounted almost as quickly, reaching $1.6 billion last year.

That's why investors, increasingly frustrated with the losses and valuation drop, set their sights on Neumann and were ready to stage the coup at a board of directors meeting in late September. 

SoftBank, the biggest investor in We, was reportedly exploring how to replace Neumann.

It is not clear whether the plan, first reported by the Journal, had turned up the heat on Neumann to step down.