These are SoftBank’s levers to disrupt WeWork’s IPO

Softbank has invested billions in the co-working giant, has control over WeWork’s Asia business and is yet to release a $1.5B commitment

Sep.September 10, 2019 06:10 PM
Softbank CEO Masayoshi Son and WeWork CEO Adam Neumann (Credit: iStock and Getty Images)

Softbank CEO Masayoshi Son and WeWork CEO Adam Neumann (Credit: iStock and Getty Images)

SoftBank has been WeWork’s biggest backer, pouring more than $10 billion into a ballooning startup that has attracted increasing skepticism. Now, the market’s frigid reception of WeWork’s IPO is putting the companies’ relationship to a test.

SoftBank is urging WeWork’s parent company to shelve its IPO plans as the Japanese conglomerate tries to raise $108 billion for a second Vision Fund. It could struggle to attract major investors if the firm’s initial $100 billion Vision Fund is hurt by a poor performing investment in WeWork.

Even though WeWork’s IPO could technically proceed without SoftBank’s blessing — its CEO Adam Neumann currently holds a majority vote of the board — the company’s largest investor has leverage to get its way.

In addition to holding a 29 percent stake in the company, and a member on WeWork’s board, SoftBank has yet to release a $1.5 billion commitment to WeWork. That cash infusion is due April 2020, and is dependent on WeWork not going into default. It would also provide much-needed funding for its growth plans, according We Company’s IPO filing to the U.S. Securities and Exchange Commission last month.

Another factor is WeWork’s $1.6 billion Asia business, in which SoftBank played a key role in establishing, and where it has entered into joint ventures in China, Japan and the Pacific region. SoftBank holds a 50 percent stake in the Japan entity, a 40 percent stake in the Pacific entity and a minority stake in the China entity, alongside Hony Capital and Trustbridge.

In the Japan and Pacific agreements, WeWork is barred from issuing dividends without SoftBank’s consent. In its SEC filing, WeWork acknowledged that “a significant part of our international growth strategy and international operations will be conducted through joint ventures, and disputes with our partners may adversely affect our interest in these joint ventures.”

SoftBank also funds 99.99 percent of WeWork’s venture capital firm, the Creator Fund, and has committed to issuing $180 million, but has so far deployed only $50.7 million.

WeWork and SoftBank declined to comment.

WeWork has faced increasing scrutiny as investors question whether its business model – renting office space and subleasing it at a premium — will be durable during an economic downturn. If the IPO does proceed, WeWork needs to raise at least $3 billion to unlock a $6 billion commitment from the major banks underwriting the event.

Last month, investors bristled at some of WeWork’s business practices and priorities. Those included a $5.9 million payment to buy the rights of the word “We” from CEO Adam Neumann, and the fact that the company would have an all-male board. WeWork has already shown that it is willing to make some changes. Last week, it announced that a woman had been appointed to the board, and that Neumann would return the payment for the word “We.”)

For now, it remains to be seen whether SoftBank’s outward messaging can pressure WeWork to postpone its public offering. After news broke Monday of SoftBank’s intentions, CNBC later reported that WeWork remained steadfast in its intention to push ahead with an IPO roadshow as soon as next Monday.

“Public pressure is still an important validator of the company,” said Kevin McNeil, an analyst with Fitch Ratings. He added that SoftBank’s “private influence is still a factor.”

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