SoftBank Threatens to Unravel $3 Billion WeWork Stock Deal
SoftBank said it could withdraw from an agreement to buy $3 billion of stock in WeWork, a deal that was set to close in two weeks
(Bloomberg) -- SoftBank Group Corp. told shareholders of WeWork that it could withdraw from an agreement to buy $3 billion of stock in the embattled co-working business, casting doubt on a deal that had been set to close in about two weeks.
In a message to stockholders reviewed by Bloomberg, the Japanese conglomerate cited numerous government inquiries into WeWork, including those from U.S. attorneys, the Securities and Exchange Commission, attorneys general in California and New York and the Manhattan district attorney.
SoftBank’s shares slid as much as 12% in Tokyo -- their biggest intraday fall since October 2012 -- weighed down also by an outlook cut by S&P Global Ratings on Tuesday. Spokeswomen for SoftBank and WeWork parent company We Co. declined to comment. The Wall Street Journal reported the email to shareholders earlier Tuesday.
The WeWork stock purchase was part of a rescue financing from SoftBank after WeWork’s failed initial public offering last year. SoftBank already invested $1.5 billion as part of the bailout in October and is looking to arrange billions of dollars more in debt.
Some investors were blindsided by Tuesday’s memo from SoftBank, said a person familiar with the matter who asked not to be identified. A delay or cancellation of the offer to buy stock would cut off a source of income many former and current WeWork employees had been counting on. Adam Neumann, who was ousted as chief executive officer during the turmoil, was slated to sell as much as $970 million in stock as part of the deal.
Executives at SoftBank had been looking to alter the stock agreement since at least November. They discussed possible ways to reduce the purchase amount, a move that would be designed partly to limit Neumann’s payout, Bloomberg reported at the time.
This week’s notice from SoftBank raises questions about whether it may seek to negotiate a lower price, delay the purchase until the economy stabilizes or withdraw entirely. SoftBank’s stock is down 27% this month, and economists from Goldman Sachs Group Inc. and Morgan Stanley say a global recession is underway.
The worldwide market rout could hammer the value of SoftBank’s assets if it persists, S&P said in trimming the company’s outlook. The credit-rating agency said SoftBank’s plans to spend about $4.8 billion on a share buyback amid plummeting stock markets raises questions about its prioritization of financial soundness.
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