Shared workspaces company WeWork has filed a lawsuit against SoftBank over a cancelled $3 billion tender offer, claiming the Japanese tech giant “breached its contractual obligations and fiduciary duty”.
The lawsuit comes less than a week after SoftBank announced its tender offer for up to $3 billion worth of shares of WeWork had ended because “certain conditions to the tender offer were not satisfied”.
WeWork is one of the biggest operators of shared workspaces across the globe, with 739 locations and around 662 000 members worldwide.
The co-workspaces pioneer, also known as The We Company, was on the brink of financial collapse until it signed an $8 billion rescue deal with SoftBank in October 2019, which would have seen the Japanese tech giant take over 80% of the shared workspaces company.
The deal included $5 billion in new financing and the launch of a tender offer by SoftBank of up to $3 billion for existing shareholders.
The now terminated $3 billion tender offer would have bought out some of the equity held by the company’s co-founder Adam Neumann, along with many employees and stakeholders.
In a statement, the shared workspaces firm says SoftBank’s wrongful action constitutes both a breach of contract and a breach of fiduciary duty to hundreds of WeWork’s current and former employees.
“The special committee of the board of directors of The We Company regrets the fact that SoftBank continues to put its own interests ahead of those of WeWork’s minority stockholders,” notes the statement.
“Instead of abiding by its contractual obligations, SoftBank, under increasing pressure from activist investors, has engaged in a purposeful campaign to avoid completion of the tender offer.”
According to WeWork, Softbank initially tried to thwart the roll-up of WeWork’s joint venture in China, and then claimed the conditions to closing the tender offer were not met.
Softbank's termination is considered a second big blow for the embattled shared workspaces firm, amid growing concerns that the impact of the deadly coronavirus pandemic could potentially lead to it permanently closing shop, as organisations across the globe introduce work-from-home policies, due to lockdown regulations.
Thousands of WeWork tenants across the globe have reportedly either cancelled their lease agreements or refused to pay rent.
As part of the terms of agreement of the October deal, the companies had set performance targets that WeWork had to meet in exchange for the secondary liquidity.
SoftBank, in its statement, says it is within its right to terminate the tender offer because “several of the closing conditions were not satisfied by the 1 April 2020 deadline”.
However, WeWork says SoftBank has already received most of the benefits provided to it under the agreement, including broad control of WeWork and additional economic benefits. “Neither the MTA nor the conditions to the tender offer contain any material adverse effect provision that could allow SoftBank to avoid closing the tender offer as a result of current global events,” says WeWork in the statement.
Collapsing expansion strategy
The SoftBank deal came a month after WeWork announced in a statement that its co-founder and CEO Neumann will step down and only serve as non-executive chairman of the board.
The decision came after WeWork shelved its plans for an initial public offering last year, after its investment bankers struggled to persuade money managers on Wall Street to invest in shares of what was described as a “risky” business model.
The SoftBank deal increased WeWork’s value to just over $8 billion, a far cry from its 2016 value of $15 billion.
Since the deal, the co-working spaces company has been investing heavily in global expansion, outlining a five-year strategic plan that saw it open new offices in various parts of the globe, including SA.
Locally, the company has three offices, two in Johannesburg and one in Cape Town.
Within a few months of opening its first Rosebank-based local office inSeptember, the building hit 99% occupancy, with 43% of tenants consisting of large enterprises, such as Standard Bank, Naspers, Red Hat and T-Systems.
Speaking to the media during a tour of the six-storey building earlier this year, Stafford Masie, GM of WeWork SA, said: “This is the new construct of how future enterprises will look; we will see more corporates moving their teams to co-working spaces, while executives remain in the fixed office space.”
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