Time’s up for WeWork?: $3bn tender offer for WeWork withdrawn

April 21, 2020

2 min read

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What's going on here?

Softbank has pulled the plug on a $3bn tender offer to purchase additional WeWork stock, given the difficult economic climate resulting from COVID-19.

What does this mean?

Following WeWork’s IPO debacle (for more information read our article on that here), the Japanese investment bank Softbank mooted the idea of arranging a $3bn stock purchase.  As part of Softbank’s bailout package for WeWork, a set of conditions had to be fulfilled by a deadline of April 1, which the company failed to meet. 

According to Softbank, the failures include WeWork’s inability to restructure its China and Asia businesses and to handle the legal issues surrounding its financing. The deal has also been impacted by the coronavirus epidemic. Additionally, this also means that Softbank would not be obligated to continue a further $1.1bn debt package.

Under this bailout package, the ousted former CEO of WeWork, Adam Neumann, stands to lose up to $1bn from the tendering of his stock. More importantly, WeWork would lose a significant source of financing that would be crucial to weathering the difficult economic market created from the coronavirus epidemic.

What's the big picture effect?

Legally, WeWork representatives have expressed a desire to challenge this through litigation. Softbank might elect to settle and follow through its original commitments in order to avoid the publicity. Ultimately, however, Softbank’s duty is to its investors and shareholders, and it might well make the judgment that taking a loss on WeWork is inevitable. This is especially so having already spent almost $14bn on the troubled company.

Given WeWork’s business model of taking on longer-term leases from property companies and subletting them in the short-term to businesses, WeWork could potentially be looking at significant financial trouble in the medium to long-term. Businesses have switched to remote working given the coronavirus epidemic, and are likely to trim unnecessary costs given the current economic climate. This means that WeWork is saddled with long-term leases if it cannot find businesses to take up commercial spaces. WeWork may be able to survive for a year or so by relying on Softbank’s sizeable resources but over a longer time horizon, it will have to start moving towards the path of profitability before Softbank pulls the plug for good.

Report written by Henry Tan

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