Softbank Rescues WeWork From Bankruptcy Filing, Takes Ownership Preventing A Big Tech Lehman

Softbank Rescues WeWork From Bankruptcy Filing, Takes Ownership Preventing A Big Tech Lehman

WeWork bailout
WeWork has agreed to a bailout from SoftBank in a deal that will value WeWork at up to $8 billion and give SoftBank up to 70% control of the workspace-sharing company. Photo edit by Autumn Keiko

WeWork has agreed to a bailout from Tokyo-based SoftBank in a deal that will value the co-working space giant between $7.5 billion and $8 billion, CNBC reported on Monday.

The bailout will give SoftBank up to 70 percent control of WeWork and former CEO Adam Neumann’s stake will drop to low double digits.

SoftBank itself is taking control as opposed to Vision Fund, its $100 billion startup-focused fund thought to have one of the deepest capital pools in all of tech.

Led by Japanese billionaire Masayoshi Son, SoftBank plans to spend up to $5 billion on the WeWork bailout — mostly on new equity but also on existing shares, sources told CNBC.

WeWork’s valuation was up to $47 billion a few months ago with a highly anticipated IPO planned in August. It had planned to raise billions of dollars in the IPO but its initial public offering failed to materialize after investors raised questions about WeWorks leadership and business model.

Six weeks later, WeWork fired Neumann and replaced him with two co-CEOs. In addition to raising funding, they looked at selling some WeWork acquisitions and the company’s corporate jet, laying off staff, winding down non-core businesses and getting rid of members of Neumann’s inner circle, Business Insider reported.

WeWork bailout is bad news for employees

Softbank has offered to buy more than $1 billion in shares from employees and investors, sources told the Wall Street Journal. The company was reportedly preparing to lay off at least 2,000 people. WeWork staff told the Guardian that they believe more of the company’s 15,000 workers could lose their jobs.

SoftBank International CEO Marcelo Claure will become interim WeWork chairman.

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Despite losses of almost $1 billion in the first six months of 2019, WeWork still managed to score a $47 billion valuation earlier this year. Neumann’s fundraising abilities are credited for that, according to Techcrunch.

In September, Boston Federal Reserve President Eric Rosengren warned that co-working could pose “a new type of financial stability risk” for commercial real estate markets. He didn’t mention WeWork by name but said the rise of co-working spaces could make the next U.S. recession worse by triggering a run on commercial real estate.

“Bank runs do not really happen anymore, not with deposit insurance and other government support,” Lee Schafer wrote for the Star Tribune. “And yet, a version of this old bank-run story is pretty much what happened at Lehman Bros. Holdings in September 2008, the start of the most terrifying stretch of that decade’s financial crisis.”