SoftBank takes over WeWork for USD 10 billion
SoftBank Group Corp’s financial strains escalated on Wednesday as it agreed to spend more than $10 billion to take over office-space sharing start-up WeWork, knocking the Japanese tech conglomerate’s already weakened shares.
SoftBank’s total investment in the money-losing firm will rise to more than $13 billion to give it an 80% stake in, but not control of, WeWork, now valued at $8 billion. Shares in SoftBank Group fell 2.5% on Wednesday and have tumbled almost 30% from their July peak as investor scepticism grows over the path to profitability for cash-burning investments like WeWork and Uber.
The WeWork deal is structured to avoid SoftBank having to consolidate it or take on onerous lease obligations. Although SoftBank has an army of retail investors in yield-strapped Japan willing to buy its junk bonds, it already holds about 5 trillion yen ($46 billion) of net debt on its balance sheet - more than half its 9 trillion yen market capitalisation.
The cost of default protection on SoftBank Group has risen, with the 5-year credit default swap jumping 17.7 points in a week to the highest level since January.
Disarray at WeWork, which is scrambling for cash following a flopped IPO attempt, comes as SoftBank founder and CEO Masayoshi Son struggles to raise money for a successor to his $100 billion Vision Fund, sources said this month. Son’s strategy of betting on ambitious founders, who will use SoftBank’s generous cash injections to push for rapid growth, has come under growing investor scrutiny.
At WeWork, SoftBank will remove co-founder of the company Adam Neumann, first as chief executive and now from the board of WeWork’s parent, following a botched initial public offering (IPO) attempt and corporate governance concerns. SoftBank’s CEO, Marcelo Claure, will become WeWork’s executive chairman.