Global coworking company WeWork has now sued its biggest investor SoftBank for backing out of a $3 Bn deal in its bailout package. In a lawsuit filed in the Delaware Court of Chancery, the special committee of WeWork’s board said SoftBank and CEO Masayoshi Son is now suffering from “buyer’s remorse.”
SoftBank called the lawsuit “a desperate and misguided attempt” to rewrite last year’s agreement, emphasising that the share purchase was subject to certain conditions.
The case stems from the fact that last week SoftBank had said that WeWork failed to fulfil conditions required to complete the tender offer. This included the existence of pending criminal and civil investigations into the office-sharing company, global restrictions related to Covid-19 that are affecting WeWork’s operations and the failure to restructure a joint venture in China.
However, WeWork is now saying that SoftBank was facing an “increasingly dire” financial situation and took “desperate” actions to back out of the share buyout, including torpedoing the restructuring of the Chinese joint venture.
The special committee said, “SoftBank’s failure to consummate the tender offer is a clear breach of its contractual obligations … as well as a breach of SoftBank’s fiduciary obligations.”
SoftBank’s decision to pull out of the deal can be seen in the light of pressure the company is facing from its investors and market watchers. SoftBank Vision Fund expected to reach $108 Bn in its second fund size based on the memorandum of understanding (MoUs) it has signed with investors, but this has become increasingly difficult.
Recently, reports surfaced that SoftBank may just be able to raise half of the desired $108 Bn corpus for the second fund, with nearly all of the capital coming from its own pocket. The report noted that smaller investors like Taiwanese and Japanese insurers, Goldman Sachs and Standard Chartered aren’t likely to invest this year.
Softbank’s biggest investors Saudi Arabia’s Public Investment Fund (PIF) and Abu Dhabi’s state-owned fund Mubadala Investment Co have also tightening purse strings. Both the investors have told SoftBank that any cash they put into Fund II must come as a profit from Fund I.
SoftBank had a rocky 2019 and the biggest smackdown came with WeWork’s failed public listing.
The coworking company had filed its draft papers for IPO in August 2019, but the details made investors wary of the corporate governance and real estate management, with very little emphasis on tech, which is what had sold the high IPO price that WeWork was asking for. After a lot of back and forth, the company’s founder and CEO Adam Neumann had to exit as SoftBank bailed out the company after value erosion.
Since the WeWork disaster, Son has urged portfolio companies to focus on economics and turn profitable before eyeing a public listing.