SoftBank signs $ 3 billion deal to buy WeWork shares. A loan of $ 1.1 billion is also in doubt.

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Photograph by Timothy A. Clary / AFP / Getty Images

SoftBank Group

terminated an agreement to buy up to $ 3 billion in shares of WeWork’s parent company, We Co.

Much of that stock was owned by venture capital fund Benchmark Capital and WeWork founder Adam Neumann. None of the proceeds from the transaction went to WeWork itself.

In canceling the transaction, SoftBank (ticker: SFTBY) cited, among other factors, the ongoing investigations into the property rental company. The $ 3 billion stock purchase would have valued WeWork above its fair market value, which has likely been reduced in recent weeks by the sudden economic shutdown caused by Covid-19.

In a March 26 letter to investors reviewed by Barron’s, WeWork said it has “the financial resources and liquidity to execute our plan through 2024, including handling the short-term challenges and volatility presented by Covid-19 ”. The letter says that $ 1.1 billion in debt financing committed by SoftBank had been conditioned on the now-cleaned takeover bid.

Multiple sources linked to the $ 1.1 billion loan note that SoftBank has yet to commit to moving forward with the funding, but still could.

SoftBank and its venture capital arm, the SoftBank Vision Fund, have invested more than $ 14.25 billion in WeWork, including $ 5.45 billion since October 2019. This includes $ 1.5 billion in equity in October. , $ 2.2 billion in debt financing in December and support at $ 1.75. billion credit facility

Goldman Sachs

and others in February. SoftBank says WeWork had $ 4.4 billion in cash and cash commitments at the end of 2019.

These investments are separate from the terminated $ 3 billion deal, which would have paid Neumann and some other early investors a substantial salary.

“The termination of the take-over bid will have no impact on WeWork’s operations, its customers, its five-year business and strategic plan, or the vast majority of current WeWork employees,” SoftBank said in a statement. communicated. “WeWork has made tremendous operational progress over the past six months. “

A WeWork spokesperson declined to comment on the announcement. A special committee of WeWork board members said in a separate statement it was “surprised and disappointed” with SoftBank’s move. The committee, which consists of a benchmark partner and another WeWork investor, said it was evaluating its legal options, including litigation.

New Street Research analyst Pierre Ferragu wrote in a research note Thursday that SoftBank’s financial bailout for WeWork had not changed significantly. “What really matters for the future of the business is the additional liquidity provided by SoftBank,” he writes. “On this front, $ 5.4 billion of the planned $ 6.5 billion has been delivered. “

In its March 26 letter, WeWork said it has “the financial resources and liquidity to execute our plan through 2024, including handling the short-term challenges and volatility presented by Covid-19.”

In a footnote to this letter, WeWork said it remains “committed to our five-year plan and 2024 targets and is confident in the company’s long-term outlook and performance” and ” focused on getting Adjusted EBITDA and positive cash flow … as fast as possible. “

But WeWork also said that “in light of recent events related to the Covid-19 pandemic and given the uncertainty of the current environment, we no longer plan to meet previously disclosed targets for 2020 and we are in the process of reviewing and reassessing previously disclosed forward-looking information regarding our other milestones. “

SoftBank said the $ 3 billion takeover bid was subject to various closing conditions that had not been met by the target date of April 1, including the required regulatory approvals. SoftBank highlighted “multiple, new and significant ongoing criminal and civil investigations” opened since the signing of the agreement in October 2019, “in which authorities requested information regarding, among other things, WeWork’s fundraising activities, investor communications, commercial relations with Adam Neumann, operations and financial condition.

SoftBank also cited “multiple new actions by governments around the world related to Covid-19, imposing restrictions on WeWork and its operations,” as well as a failure to complete the planned deployment of WeWork’s joint ventures in China and Asia. .

SoftBank noted that Neumann and Benchmark held more than half of the shares that would have been eligible for the takeover bid, with current WeWork employees making up less than 10% of the total.

SoftBank shares are down 26% in the past month, but have rallied in recent days on news that the company plans to sell $ 41 billion in assets to fund a buyout program. stocks and debt repayment.

SoftBank shares rose 4.4% on Thursday, to $ 17.33.

Write to Eric J. Savitz at [email protected]

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