Masayoshi Son, the Japanese billionaire and CEO of SoftBank, has agreed to buy control over the world’s largest coworking network, WeWork. The founder of the network, Adam Newmann, will receive about $ 1.7 billion and lose all remaining posts in the company – he will leave the board of directors and will be able to attend meetings only as an observer. The deal may be announced this Thursday.
- The total amount Newman will receive consists of three parts: SoftBank will buy back $ 1 billion WeWork shares from him, provide Newman with $ 500 million debt financing to repay his debt to JPMorgan and pay $ 185 million in salary for his further work as a consultant.
- As part of the deal with SoftBank, the company will be valued at $ 8 billion. For comparison, in January 2019, investors estimated WeWork at $ 47 billion. By September, when there was still hope for an IPO, it was only about $ 20 billion.
- SoftBank was one of the main participants in the previous rounds of financing WeWork, until today’s deal, Masayoshi Sona owned about a third of the shares of the coworking network.
- WeWork shareholders chose between two competing offers – from SoftBank and from JPMorgan, but they chose the first.
How much will they spend? According to CNBC, in general, the rescue of WeWork will cost SoftBank $ 4-5 billion – this money will go to buy additional shares from other shareholders and pay off debts. As a result of the transaction, the company will increase its stake in WeWork to 70%.
What will lose Newmann?
- A place on the board of directors. The post of CEO of WeWork Newmann lost in September, but still remains the chairman of the board of directors. The founder of the company will have a large (but less than 10%) stake in its shares, but he will be able to participate in meetings of the board of directors only as an observer. Marianlo Claure, Chief Operating Officer of SoftBank Group, will become Newman’s successor in the lead.
- The voting power of shares. In the penultimate version of the charter of WeWork, adopted before the IPO, Newmann’s shares were to receive 20 votes each. When the IPO still seemed possible, under pressure from investors, Newmann agreed to reduce this figure to 10. Now his papers will be equated with everyone else.
Story of failure. The failed IPO WeWork was the loudest failure of the year. When preparing for it, investors learned about the company a lot of things that, right during the roadshow, brought down the start-up estimate from $ 47 billion to $ 15–20 billion. Forbes now estimates that the company costs less than $ 3 billion, and the fortune of Newman himself, once a multi-billionaire, collapsed seven times, up to $ 600 million.
- From a statement by WeWork filed with the Securities Commission (SEC), it turned out that the startup was unprofitable for several years in a row and the gap between revenues and expenses does not compare with other newcomers to the exchange. Last year, the company’s losses amounted to $ 1.6 billion. For comparison, in 2016 their size did not exceed $ 430 million. According to the results of the first half of 2019, the startup lost $ 690 million with revenues of $ 1.5 billion. The expenses were primarily for rental payments to owners real estate in which co-workings were opened.
- The main reason for the collapse was Newman’s leadership style, which combined drinking strong drinks in the office with voluntarism, excessive spending and nepotism.
IPW WeWork transfer and the resignation of the founder of coworking Adam Newmann – including the consequence of the failure of the policy of pouring money in promising areas, the main principle of the Japanese billionaire Masayoshi Son and the Vision Fund megaphone organized by him. SoftBank, together with the Vision Fund, invested a total of $ 10.6 billion in WeWork. If Son’s defeats continue, he may for the second time in his career turn from the main icon of the technology market into the main loser.
A special report from Abhijit Roy Chaudhary