SoftBank announced on Wednesday it will pump billions of dollars into struggling office-sharing start-up WeWork, in a deal that will see co-founder Adam Neumann taking a huge payout and exiting the board.
The package, which involves new financing, speeds up already pledged money and includes a new tender offer for existing shareholders, is worth a total of USD 9.5 billion.
Neumann, who has already been forced to step down as chief executive, will exit the board for an "observer" role, but is said to be receiving more than USD 1.5 billion as he departs.
SoftBank Group's Marcelo Claure will take over as executive chairman of the board. The agreement caps a turbulent period for the once-vaunted start-up, which was valued by some at around USD 47 billion at the start of the year, and represents a significant shot in the arm as the company haemorrhages money.
"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.
"The new capital SoftBank is providing will restore momentum to the company and I am committed to delivering profitability and positive free cash flow," added Claure in the statement.
The package includes USD 5 billion in new financing, as well as a commitment to speed up an existing pledge of USD 1.5 billion.
SoftBank will also launch a tender offer of up to USD 3 billion for existing shareholders, at USD 19.19 a share, expected to start in the fourth quarter of 2019.
SoftBank, which already held 29 per cent of WeWork, will increase its stake to "approximately 80 percent", but said this did not constitute taking control.
It said it would not hold a majority of voting rights at any general stockholder meeting or board of directors meeting and "does not control the company".
"WeWork will not be a subsidiary of SoftBank. WeWork will be an associate of SoftBank," the statement said.
SoftBank Group shares closed down 2.51 per cent at 4,190 yen in Tokyo, though they were off lows seen earlier in the day.
The plan provides much-needed funds for WeWork, which sources have said must raise at least USD 3 billion to cover its financing needs through the end of the year.
A source told AFP the deal will give Neumann USD 1 billion for his SoftBank shares, USD 500 million for reimbursements of personal debts and USD 185 million in consulting fees.
He will also maintain a small stake in the company, the source added.
The deal follows months of tumult for WeWork, which has gone from star status as one of the world's most highly rated start-ups to a case study in overvaluation for some analysts.
Neumann stepped down as chief executive in September as he faced questions over perceived self-dealing between his personal assets and WeWork, and over unconventional personal conduct, including drug use.
And in late September, the firm cancelled a plan to go public amid worries about its long-term profitability prospects.
"Hopefully, this marks the beginning of the end of using IPOs on hyped-up loss-making unicorns as a profit-taking opportunity before the music stops," wrote Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA, in a note.
Richard Windsor, founder of Radio Free Mobile, said WeWork amounts to a "searing indictment of Softbank's valuation and screening methodology which needs to shift towards being based on fundamentals rather than blue sky".
WeWork, which launched in 2010, has touted its model as revolutionising commercial real estate by offering shared, flexible workspace arrangements, and has operations in 111 cities in 29 countries.
In some cities, it is one of the major landlords, but its model of offering flexible, short-term leases is viewed by some as less of a selling point and more of a liability for investors.
The saga has been a cloud hanging over SoftBank's Son, but he has remained steadfastly committed to the firm, insisting its challenges are surmountable.
"It is not unusual for the world's leading technology disruptors to experience growth challenges as the one WeWork just faced," Son said in the SoftBank statement Wednesday.
"We remain committed to WeWork, its employees, its member customers and landlords.
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