SoftBank agreed on Tuesday to a deal to take over WeWork for $10 billion for an ownership of 80 percent of the company. WeWork Co-Founder, Adam Neumann, will receive a $1.7 billion buyout; he will become a board observer without voting power. Former Sprint CEO Marcelo Claure will now be the Executive Chairman.
SoftBank is a Japanese multinational conglomerate that already owned about 30 percent of WeWork before the bailout. The $10 billion consists of $3 billion to buy out current stockholders, $5 billion for loans to the company and $1.5 billion for fresh capital.
“SoftBank has decided to double down on the company by providing a significant capital infusion and operational support,” SoftBank chairman Masayoshi Son said in a statement. “SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work,” he said.
The deal includes SoftBank offering $3 billion for existing fourth quarter shareholders. Neumann can sell approximately $1 billion in stock to SoftBank; allowing him to retain his billionaire status.
WeWork was once valued at $47 billion, though it has faced a cash shortage and continues to lose money. It is now valued at $8 billion. The company was forced to pull its Initial Public Offering (IPO). Insider dealings, careless cash use, and reports of poor judgment from leadership have contributed to its fall. The more money WeWork makes the more it loses; its biggest expense is renting office spaces. A lot of the losses can be equated to its rapid growth.
WeWork’s IPO filings show it lost $905 million in the first half of 2019 for $1.54 billion in revenue. In 2018, it lost $1.9 billion on $1.8 billion in revenue
WeWork will cut as much as 30 percent of its workforce globally, the equivalent of 4,000 jobs. Approximately 1,000 of those will affect employees, such as janitorial staff. In light of Neumann’s large payout, employees are angry at the prospect. “Yes, there will be layoffs – I don’t know how many – and yes, we have to right-size the business to achieve positive free cash flow and profitability,” Claure wrote in an internal document.
Now, with Neumann without the 10 to 1 voting power that he previously had, SoftBank will be able to take WeWork in the direction that it sees fit and will work to make the company financially stable and profitable. SoftBank’s stocks have fallen to a 10-month low as a result of the WeWork bailout.
There are also allegations of a hard-partying corporate culture that carries over into the spaces themselves, including beer taps. In 2018, a female employee filed a complaint for sexual assault in the office, and partially blamed the party culture in the office for the way it was handled. This culture has been attributed to Neumann; SoftBank will be working to change the corporate atmosphere.
