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WeWork sues SoftBank over canceled $3B tender offer
- bruceb 7y agoNot surprising, was wondering how SoftBank seemingly walked away so easily. If you are Softbank do you use this Covid crisis to back WeWork in to a corner even if their suit is legitimate as they might run out of cash before it reaches the courts? From what I understood SoftBank already owns a majority of WeWork so how does the company they own, suing them work?
- ivalm 7y agoThey own minority of voting shares and control minority of the board. Since Adam’s shares are still his he has the control.
- gnopgnip 7y agoThere is still a fiduciary duty to the minority shareholders by the majority shareholder
- dragonwriter 7y agoNo, but there's a fiduciary duty of the management (even if installed by the majority shareholder) to the minority shareholders. It's a fine distinction, especially when those roles are often exercised by an overlapping set of individual people, but it's the management as a collective agent of the shareholders that owes a fiduciary duty to all, including minority, shareholders. Shareholders, as such, do not owe each other or the firm a fiduciary duty.
- eldavido 7y agoThe thing you want to read about here is "material adverse change". Look it up. It's a contractual clause common in M&A that lets the buyer back out if something "bad" happens. A textbook MAC would be, I'm buying a house and the house burns down. The core of this litigation is sure to be whether whatever has happened with wework is in scope for the MAC clause in their loan/M&A docs, or not.
- jzl 7y agoNo matter what's in the contract, I'm pretty sure it just comes down to Sun saying "You want the money? Sue me. Good luck, you'll never see it."
- xenospn 7y agoLitigation is expensive, but I doubt it's going to cost SoftBank anywhere near $3B (unless they lose, which they probably won't).
- toomuchtodo 7y agoSoftBank just has to wait for WeWork to exhaust its cash reserves. It's clear SoftBank will take whatever steps are necessary for the deal to close and them light another $3B on fire. From a paywall FT article [1] quoted in Matt Levin's piece ("WeWon't") on this: > "Thousands of WeWork tenants have refused to pay rent or sought to terminate their leases over the past month, heaping pressure on the lossmaking group as its occupancy level and cash pile dwindles" [1] https://www.ft.com/content/78dbfb03-f47d-41f3-9bf6-6696e5ef626b https://www.ft.com/content/78dbfb03-f47d-41f3-9bf6-6696e5ef6...
- tonyhb 7y agoRan through some numbers from their S1's and Harvard Business School's anaylsis. By mid Q3 they'll be out of cash at their current burn with no new money, given their 2020 obligations.
- tibbydudeza 7y agoWell shared office space is not a good buy these days considering the corona pandemic.
- code4tee 7y agoQuote: WeWork’s board said that it “regrets the fact that SoftBank continues to put its own interests ahead of those of WeWork’s minority stockholders.” Of course they’re going do to that, it’s called fiduciary duty to their own stakeholders! Such diligence is something WeWork’s board seemed to casually overlook for far too long. At this point why would SoftBank buy WeWork shares that are in all likelihood worth little or perhaps even worthless. They’re deciding to cut their losses and move on. If I sign a contact to buy a house it still has contingency clauses. If 2 days before closing the house burns to the ground I can walk away. Obviously I don’t want to buy a burning pile of rubble. SoftBank is walking away from buying a burning house and that makes complete sense.
- JumpCrisscross 7y ago> it’s called fiduciary duty to their own stakeholders SoftBank has a fiduciary obligation to its shareholders. (Note: not all stakeholders. It has a duty to them. But it's not a fiduciary one.) It also has a fiduciary obligation to WeWork shareholders, by virtue of its Board seat. This case is, in summary, about how those duties conflict.
- code4tee 7y agoTrue although that scenario is hardly uncommon. Lots of investors have board seats and there are decisions (like if to invest in the next round) where the desire of the board (get more money for a new round) may conflict with the desires of investors that have seats in the board (we think the company has run its course and don’t want to put more money in). Like any VC SoftBank likely has lots of internal walls and controls to keep those decisions separate. Just because a VC has a board seat doesn’t tie them into perpetually funding every need of the company. Regardless the case here seems to rely on the breach of conditions and WeWork seems to have offered little evidence that these breaches did in fact not occur. If they failed to meet the conditions SoftBank can walk away.
- dheera 7y agoConflict-of-interest is a human-invented notion that is rooted in the idea that the world is black and white, and it must be one or the other. That isn't the nature of how the rest of the universe operates. All that is needed is a weighting factor between the two loss functions (in this case, obligations) to deal with cases like this, and to make the policy (in this case, term sheet) continuous and differentiable as well.
- stephc_int13 7y agoWhat a surprising surprise.
- seemslegit 7y agoGood timing, people have lots of spare attention and the supply chains for salt, butter and corn can probably be expected to bear it.
- llsf 7y agoI read that Wework had $4B in the bank at the beginning of the year. Also they are actively trying to reduce their own rent up to 30% from their landlords. And at the same time Wework gives up to 50% discount to its own large tenants, so they can stay during this hard time. No idea how long it can operate like that. If Wework had to crash, I am concerned for the whole US commercial real-estate. Wework is renting so many square feet, that it could be a tsunami of empty offices. Hopefully, current final tenants could work something with the landlords to stay. Either Softbank is trying to get a better deal... or they already know that it is not salvageable anymore.
- JumpCrisscross 7y ago> WeWork is renting so many square feet WeWork is big. CRE is huge. WeWork is not even among the top ten largest lessees in America.
- pgwhalen 7y agoSource for that? I’d be curious what the top ten are.
- eldavido 7y agoOffhand...Walgreens? CVS? Wells Fargo? Chase Bank? Just look around you, much of the Fortune 500 is in mass consumer retail, and they tend to rent rather than own.
- pgwhalen 7y agoAh fair, I was assuming office space but obviously “commercial” means a lot more than that. It seems worth diving office and retail markets though, I can’t imagine there’s much overlap.
- DamnYuppie 7y agoDo you mean CBRE? Regus is also very large in the rental space.
- joejerryronnie 7y agoSoftBank should hold out until WeWork crumbles under the weight of their terrible business model and the current crisis, then purchase their real estate assets for pennies on the dollar.
- tomp 7y agoThat was always a possible strategy for SoftBank. The agreement to additional investment was reached, presumably, so that SoftBank would be able to save face regarding it’s first investment; otherwise it would need to admit its loss.
- evgen 7y agoWhat real estate assets? Long-term lease agreements at what is certainly above market rates given the current situation?
- joejerryronnie 7y agoYou’re right, WeWork probably doesn’t own any of the buildings they operate in
- H8crilA 7y agoI really hope WeWork wins this one. The world of "investing" needs to chill a little and see a few outrageously exuberant bulls absolutely destroyed before we go from a big bubble to a massive bubble, and then to a massive crash. But then again Masa was already possibly the worst investor in the history of humanity, even before the Vision Fund, so who will take note this time? If he lives through the next 20 years he'll probably run yet another, equally idiotic fund.
- jacquesm 7y agoThey were funded based on the bubble, I don't see why the bubble collapsing wouldn't see them crash.
- H8crilA 7y agoI just mean I'm cheering for this lawsuit. Every money taken away from stupid "VC" is a win for the future peace of the economy. And obviously it has a very magnified effect - most exuberant people only want to buy at some kind of "all time high". I.e. taking away $1 from Masa will reduce the "dumb money pool" by many times that dollar.
- jacquesm 7y agoThat would work if it ended in pockets where it can do some good. Having it end up with WeWork is the same as tossing it into an outdoor furnace.
- H8crilA 7y agoOh sweet summer child. The Fed has been cranking $1M / second of brand new money for the past 2 weeks... Can't blame you for not seeing just how fucked up the financial system is and how little this WeWork money actually means.
- jacquesm 7y agoIt should be possible to make your point without gratuitous insults. Especially when you're wrong, then it makes you even more of a dick. Thank you. FWIW you are off-topic.
- jacquesm 7y agoA big chunk of their intensifying crisis will be the drying up of whatever income they still had. Short term rentals are great for the renters: easy to say "stop now", and that's exactly what this COVID-19 crisis has done for many companies. If they were using WeWork before they are now using it less or not at all.
- mekoka 7y agoFrom a previous piece also by techcrunch https://techcrunch.com/2020/04/02/softbank-terminates-3bn-tender-offer-for-wework-shares/ https://techcrunch.com/2020/04/02/softbank-terminates-3bn-te... WeWork’s handling of the coronavirus crisis has also caused some rifts with its membership, with press reports of members angry at it for refusing refunds for spaces they can’t (in good conscience) use. It has also faced criticism from members angry it’s prioritizing rent collection from now very cash-strapped small businesses rather than closing down during a public health crisis.
- keanzu 7y agoWeWorkFromHome is going to kill WeWork
- chrisjc 7y agoI understand that the initial funding was provided through the vision fund, and second round funding through the vision fund was shot down by vision fund members. As as a result, the second round funding was going to be provided by Softbank themselves... Is this news about that second round funding by Softbank?
- hkmurakami 7y agothis is the buyout of individual shareholders.
- jaequery 7y agoI understand Softbank is walking away from the deal. Does that mean they didn't put in any money yet? How much are they losing from this deal?
- mike_d 7y agoSoftBank is only walking away from buying out the founders and early employees that got the company in this mess. They continue to invest and extend credit to the company itself.
- peeze 7y agoCrisis? More like correction.
- duxup 7y agoI wonder after the mess of WeWork plays out: Who buys all those buildings / assets? There have to be some pretty good deals out there considering a collapse of WeWork / fire sale and the economy for someone who can manage some these assets.
- worik 7y agoThey did not own the buildings. Real estate in big cities is (generally speaking) quite a closed shop. They had leases.
- hkmurakami 7y agoThey did buy some small number of buildings https://therealdeal.com/2019/11/01/weworks-white-elephant-insiders-savage-its-lord-taylor-building-buy/ https://therealdeal.com/2019/11/01/weworks-white-elephant-in...
- hkmurakami 7y agoHow many buildings do they actually own outright given that most of their offices are long term leases? The buildings that they do own are surely heavily mortgaged, which means that the lender will attempt to foreclose on it if payments are not made. WeWork itself could try to preemptively unload it. There's standard processes for properties with trust deeds attached to them.
- LatteLazy 7y agoPure opinion: On the one hand, they're a real estate company masquerading as a tech company (and getting the funding and valuation unicorns would hope for), and with Coronavirus they have a serious cashflow problem. On the other hand, there will be a burst of people (re)starting small businesses and wanting space on a flexible basis in a few months time...
- TheOtherHobbes 7y agoWhich will - at best - still be much smaller than previous occupancy levels. And those levels were barely enough to keep WW solvent, never mind profitable. The only thing that might save WW would be an absolutely unprecedented boom in this sector. And that's really, really unlikely in the short term, and only slightly more likely - i.e. still not very - in the medium term. And in the meantime, if WW dies there will be knock-on effects for office real estate in general, all the way up the food chain.
- hn_throwaway_99 7y ago> On the other hand, there will be a burst of people (re)starting small businesses and wanting space on a flexible basis in a few months time... I very much disagree. While the shelter-at-home, extreme social distancing regulations may relax, I'm guessing there will be a large percentage of people who will not want to be packed in, in a shared working environment, for at least a year. I don't think everyone will leave, but business will be way down, and WeWork was marginal in the best of times. It is 100%, completely dead. The only question is how long it will be able to go along in "zombie" status given existing capital and US govt loans.
- jzl 7y agoThe market doesn't demand that a monolithic entity like WeWork exist in order for co-working spaces to exist. Read up on WeWork's history and what happened with the Vision Fund investment. The only reason there are so many WeWorks is because they were given so much money that they didn't know what to do with it. And look what happened to that investment.
- 7y ago
- Simulacra 7y agoDoes this mean Adam won't get his billions?
- faramarz 7y agoWow, that won't bode well with the other investors I imagine. At some point in the near future, other players or current investors will have to either pump more cash into this investment or let it go bust. damn, what a story though. rapid growth to rapid decline.
- thehappypm 7y agoWeWork has an existential issue in that the entire workforce will emerge from this with at least 2 months of remote work experience. Many, many employers and individuals will realize that remote is OK, and in fact has a ton of benefits.
- noodle 7y agoI dunno, I feel like this could swing either way. I'm a remote worker and I work out of a coworking space. If more people go remote, demand for coworking space could also increase.
- freehunter 7y agoI'd agree with this take. I think some number of people will realize they don't like needing to go to the office every day but also can't feasibly work from inside their own house (kids, dogs, spotty wifi, loud neighbors, etc).
- grogenaut 7y agoYour forgetting the obvious overcorrection against remote once it's "safe" everyone who felt they lost control is going to be way worse. Others who are smart will be better. Also you're assuming there aren't a lot of terrible employees taking advantage as well. There are a lot of terrible managers and terrible employees ruining things for everyone else.
- smcl 7y agoI don’t know why you’re getting downvoted. While I do not think this is the main source of risk (their insane burn, and losing N weeks of income from tenants who cancel are much more concerning) there is a very real possibility that many companies who were resistant to allowing work-from-home are now more comfortable with the idea and could consider it as an option to when they outgrow any office space in future.
- readhn 7y agoThumbs up to Softbank for dodging a bullet! What a timing! I bet they are smiling ear to ear - could have been one hell of a blow for them - buying quickly deflating unicorn startup sitting on a bunch of depreciating assets.