NEW YORK – SoftBank Group Corp. won approval from WeWork’s board to take control of the troubled co-working startup, in a deal that would hand co-founder Adam Neumann nearly $1.7 billion and sever most of his ties with the company.
WeWork, in danger of running out of cash in the coming weeks, chose a rescue offer from SoftBank over a competing proposal from JPMorgan Chase & Co., according to people familiar with the matter. It had asked both parties to submit proposals by a deadline Monday.
The deal is expected to value the company at about $8 billion, a far cry from what it was expected to fetch in an initial public offering earlier this year and even less than the $47 billion at which a January investment from SoftBank pegged its worth.
As part of the deal, SoftBank, which already owns about a third of the company, is to buy nearly $1 billion of stock in WeWork’s parent from Neumann, who was forced out as chief executive after pushback from prospective investors scuttled the IPO. The Japanese conglomerate will also extend him roughly $500 million in credit to help repay a loan facility of the same amount led by JPMorgan, and also pay Neumann a $185 million consulting fee, the people said.
Neumann, who is still chairman of We Co., as the parent is known, is also expected to step down from the board, the people said. He will maintain a stake in the company and remain a board observer.
The nearly $1 billion share purchase is part of a tender offer of as much as $3 billion from SoftBank to be extended to the company’s employees and other investors.
WeWork’s board is expected to announce this deal Tuesday, though the people warned it could be delayed.
SoftBank’s Vision Fund was expected to move up a $1.5 billion investment in WeWork that it had been scheduled to make next year. There is also a $5 billion loan component.
Neumann, who co-founded WeWork in 2010, once had a block of shares in WeWork that gave him as much as 20 votes per share. As part of this deal, all We stock now will have the same voting power. Neumann’s stake in the company is expected to fall to below 10% after he sells shares.
SoftBank’s $500 million loan to Neumann was a critical part of the negotiations, as he had a line of credit that was tied to his stock in WeWork at a previous, much higher valuation.
When Neumann relinquished the CEO title in late September, it triggered terms of the loan that would have put him in technical default, which could have given JPMorgan and the other lenders the opportunity to make him repay his loans immediately, according to people familiar with the matter. JPMorgan gave him 45 days to work out his loans – and could have extended that timeline further – but the new SoftBank loan takes away the possibility of foreclosure.
A top SoftBank executive, Marcelo Claure, was expected to succeed Neumann as board chairman and head a search for outside leadership, including potentially a new chief executive to replace the two men who have been sharing the job since Neumann’s departure. There are expected to be other changes to the board as part of this deal.
WeWork’s swift fall, in which it lost nearly $40 billion of value, marks a collapse with little precedent for what was once one of the country’s most valuable startups. Just five weeks ago, WeWork was planning an IPO that its bankers at JPMorgan and Goldman Sachs Group Inc. told company executives could fetch a valuation around $20 billion.
Investors balked at the company’s steep and growing losses and a tangle of business and personal dealings with Neumann, whose erratic management style and party-heavy lifestyle also raised eyebrows.
Under its new co-CEOs, Artie Minson and Sebastian Gunningham, WeWork has been crafting plans to sell or shut down side ventures, including a private elementary school and event-planning website Meetup.com, to focus on its core business of leasing office buildings, renovating them and subletting to short-term tenants.
WeWork also has been planning to cut thousands of employees, but delayed the layoffs earlier this month because it couldn’t afford the severance costs, people familiar with the matter have said.