WeWork has accepted a rescue package from SoftBank Group, its largest investor, that will give the Japanese conglomerate an 80 per cent stake in the company, reported Bloomberg.
The deal marks the end of an era for the troubled co-working giant, which raised money at a $47 billion valuation in January 2019, pulled out of a botched initial public offering attempt last month and is now valued at less than $8 billion in the bailout.
WeWork founder Adam Neumann will leave the company’s board as part of the package, to be replaced by SoftBank executive and newly appointed Executive Chairman Marcelo Claure.
Neumann is set to walk away from the deal with as much as $1.2 billion in WeWork stock, a $500 million credit line from SoftBank and a roughly $185 million consulting fee.
The deal with SoftBank, which includes $5 billion in new financing and an acceleration of a $1.5 billion existing commitment, grants a reprieve to WeWork parent company WeCo., which was on track to run out of money as soon as next month.
The company has been racing to slash costs since it pulled its IPO paperwork in September 2019 and is expected to fire thousands of employees this month.
The SoftBank rescue was one of two options the WeWork board was considering to keep the company afloat. The other alternative was a $5 billion debt package presented by JPMorgan Chase & Co., the proposal was said to have been one been of the riskiest junk-debt offerings in recent years, including $2 billion of pay in kind bonds yielding 15 per cent.
As part of the deal with SoftBank, the company will offer to buy as much as $3 billion from existing shareholders, from the fourth quarter. Neumann will be allowed to sell nearly $1 billion of stock to SoftBank.
WeWork’s arc—from being one of the world’s most highly valued start-ups, to surrendering much of the company in an emergency bailout—is one of the most dramatic business disasters in recent memory. As recently as last month, the company appeared to be headed to the public markets. But investors baulked at the company’s unusual governance structure and rapid rate of spending. According to its IPO paperwork, WeWork lost $900 million in the first half of this year alone.