WeWork has secured a US$9.5 billion rescue package from SoftBank Group Corp., a deal that hands 80 per cent of the company to the Japanese conglomerate while capping one of the more dramatic business debacles in recent memory. WeWork, reeling since it scrapped an initial public offering last month, was set to run out of cash as early as next month. The almost $1.7 billion package would be in addition to his previous share sale.
Neumann also has the right to sell $970 million of shares, according to one of the sources, as part of a tender offer in which WeWork will buy up to $3 billion in WeWork shares from existing investors and employees at a price of $19.19 each.
Shares in SoftBank Group fell 2.5% on Wednesday and have tumbled nearly 30% from their July peak as investor scepticism grows over the path to profitability for cash-burning investments like WeWork and Uber UBER.N .
At a WeWork executive offsite meeting a year ago, Adam Neumann tried to fire up his lieutenants by invoking the company's largest benefactor, SoftBank founder Masayoshi Son.
A top SoftBank executive, Marcelo Claure, was expected to succeed Mr. Neumann as board chairman and head a search for outside leadership, including potentially a new chief executive to replace the two men who have been sharing the job since Mr. Neumann's departure.
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All of the Vision Fund's interests in regional joint ventures with WeWork outside of Japan will be exchanged for shares in WeWork at $US11.60 per share, SoftBank said. Representatives for Neumann and WeWork declined to comment. There is also a $5 billion loan component.
WeWork's August IPO filing showed that its revenues grew at a staggering rate from $438 million to $1.82 billion between 2016 to 2018, but its losses have followed a similar growth.
WeWork did not immediately respond to request for comment.
The infusion from its biggest outside investor comes as the start-up, which once had a $47 billion valuation, was on the brink of running out of money - as soon as November, by some estimates. Dunlevie is a general partner at WeWork investor Benchmark Capital, while Frankfort was the CEO of handbag company Coach. The other is Lew Frankfort, who is the former CEO of luxury handbag maker Coach. If that were to happen, WeWork co-CEOs Artie Minson and Sebastian Gunningham will each be able to count on multi-million dollar golden parachutes to carry them away.
Facing a cash crunch, WeWork is seeking to slow down its expansion, reducing the number of new property leases it is taking on.
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Neumann stepped down as CEO under pressure last month, but he retained a controlling share of the company, making his approval necessary for any deal. The cuts will occur over the coming weeks, the sources added.
The offers mark a major fall from grace for WeWork, once a darling of Silicon Valley and valued at as much as $47bn earlier this year.
Neumann, 40, is not the first founder of a major startup to be forced to step down recently.
During the attempts to woo IPO investors last month, Mr Neumann was criticised by corporate governance experts for arrangements that went beyond the typical practice of having majority voting control through special categories of shares. WeWork's seven-member board tapped directors Bruce Dunlevie and Lew Frankfort to form a two-man committee to evaluate the plans, Reuters reported.
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