Japanese technology investor SoftBank Group Corp is planning to pump an extra $1bn or more into WeWork by renegotiating an agreement struck before falling valuations delayed the US-based office-sharing startup’s initial public offering (IPO), the Financial Times newspaper has reported.
The plan would increase SoftBank’s initially planned investment of $1.5bn in WeWork as part of the agreement, giving the US company the right to receive the money in April next year in exchange for shares in WeWork.
The startup postponed its IPO last week and, on Tuesday, its co-founder Adam Neumann resigned as CEO, giving up the majority of his voting control after SoftBank and other shareholders turned on him.
WeWork appointed two insiders – Artie Minson, former co-president and chief financial officer, and Sebastian Gunningham, former vice chairman – as co-CEOs. Neumann will stay on the board as non-executive chairman.
Minson and Gunningham are considering layoffs of several thousand of WeWork’s 12,500 employees as well as jettisoning or shutting down non-core business lines, sources told FT.
We Company said it is evaluating the “optimal timing” for an IPO.
SoftBank and its Saudi-backed Vision Fund are WeWork’s biggest backers and have already funnelled more than $10bn into the US company, including the promised $1.5bn.
The potential new investment from SoftBank could unlock more financing options for WeWork, which is in talks for a $3bn to $4bn loan from a consortium of banks contingent on it raising additional capital, the FT added.
A new deal would reduce the price per share at which SoftBank acquires WeWork stock, giving it a larger stake in the unprofitable property group, the newspaper said, citing people briefed on the matter. It was unclear how renegotiations would affect the Japanese group’s valuation of its investment, the FT said.
WeWork declined to comment to the Reuters news agency on the report. SoftBank did not immediately respond to a request by Reuters for comment.
SoftBank invested in WeWork parent We Company at a $47bn valuation in January, but investor scepticism led to a potential IPO valuation of as low as $10bn earlier this month, Reuters reported.
In the run-up to the planned IPO, investors questioned WeWork’s corporate governance standards, as well as the sustainability of its business model, which relies on a mix of long-term liabilities and short-term revenue.
The lowered valuation is a blow to SoftBank as it tries to amass $108bn for its second Vision Fund. Reuters sources said it was likely that SoftBank would have to pony up more cash to support its biggest bet, or reflect a lower value for its stake in WeWork in its accounts, something known as a writedown.
SoftBank’s stock is down 8 percent since the beginning of this month.
The renegotiation of the warrant agreement is one of several options being considered, the FT said.
The talks are in early stages and SoftBank, led by billionaire Masayoshi Son, could decide against investing altogether, the business daily said.