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Quote: 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 co

Quote: 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 6y 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 6y ago
  True 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 6y ago
  Conflict-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.
  - JumpCrisscross 6y ago
    > All that is needed is a weighting factor between the two loss functions Assuming this is sarcasm. If not, it’s an employment guarantee for litigators.
    - dheera 6y ago
      The ligitators can check to see if the loss function was evaluated correctly to within some sigma, and the ligitators can be robotic as well, in a couple decades from now. Most of what lawyers do is apply patterns they know from before for $900/hr, and that's exactly what machine learning is good at. SoftBank is all about AI and I actually don't think AI lawyers would be a bad thing; it would be nice if they futurized their own corporate and investment structure by design instead of following today's defaults, including "fiduciary duty" in an absolute sense, which I think is an antiquated concept for a society 100 years from now. SoftBank has the power to redesign concepts such as boards, shares, equity from the ground up, and they should be doing experiments with those ideas.
  - saghm 6y ago
    > Conflict-of-interest is a human-invented notion That doesn't seem like a particular relevant critique here; it's not like naturally occurring corporate boards or some universal law of fiduciary duty are things we've observed outside of humanity. Why shouldn't human-invented heuristics apply to situations that as far as we know only occur in human interactions?
    - RHSeeger 6y ago
- eigenvalue 6y ago
  In this case SoftBank could recuse its board members from any discussion of this matter, which would sidestep the problem. The SoftBank board's duty to SoftBank investors is much more important than any loss of control in WeWork that would stem from recusing itself.
- propinquity 6y ago
  Wouldn't the responsibility be to the partners in Vision Fund rather than SoftBank's share holders?
deleted 6y ago
[deleted]
gullyfur 6y ago
Has anyone estimated how many months WeWork has until it collapses?
- devmunchies 6y ago
  probably better to measure in WEeks.
  - jzl 6y ago
    Lol. We-eeks.
- eldavido 6y ago
  Is this informed by any data or facts whatsoever? Last time I checked, WeWork was a going concern with 600,000 customers more or less happy with their service. What would tank them? Are their lease obligations too large and can't be renegotiated? This entire thing is blown so far out of proportion. Like Tesla, it seems like a company that mostly makes products people like, whose equity is extremely hard to value. Maybe WeWork is worth $40 billion, maybe it's more like Regus and worth $4. This only affects you if you're a shareholder. As a WeWork customer, I absolutely couldn't care less about any of this nonsense. I'm reminded of a classic finance quote: "If I owe you $100, I have a problem. If I owe you $100 million, you have a problem." This summarizes the dynamic between WeWork and its landlords right now.
  - Mtinie 6y ago
    "WeWork was a going concern with 600,000 customers more or less happy with their service." This may have been true in December 2019, but with a global patchwork "stay at home" regulations in place, I suspect co-work spaces (especially of the open floor plan variety) are devoid of paying customers. That presumes they're even allowed to be open right now. I don't remember offhand what the average WeWork customer generates in revenue or if the bulk of those customers are month-to-month vs. mid- to long-term contracts. If the former I don't see why those customers would continue to pay for space and services they don't have the ability to use.
ConcernedCoder 6y ago
Cue: Kenny Rogers music: "...You gotta know when to fold'm.... know when hold'm.... know when to walk away... and know when to run!"
- draw_down 6y ago
  Come on
LatteLazy 6y ago
The fact they're suing does imply that there were not contingency clauses. Otherwise, why piss off your largest investor/shareholder/backer?
- dreamcompiler 6y ago
  The "pissing off Softbank" horse has left the barn. Now WeWork is just trying to extract as much unburned rubber from its tire fire as it can.
  - LatteLazy 6y ago
    To extract any rubber at all, they will need to win. Given they have a binding agreement with Softbank (per the article), and they are willing to call in the lawyers, they must think they have a case...
    - MrsPeaches 6y ago
      Whilst IANAL, in my legal dealings I have been consistently surprised by how weak a case a desparate party is willing to bring to court.
csours 6y ago
Quoting from Matt Levine: > That is a good little window into mergers-and-acquisitions lawyering. SoftBank’s agreement with WeWork isn’t public, but presumably it says something like “SoftBank can cancel the tender if there are any material government restrictions on WeWork’s business,” but it doesn’t say something like “SoftBank can cancel the tender if lots of customers cancel their WeWork memberships.” The very rough general rule in mergers and acquisitions is that if business conditions get worse, that’s the acquirer’s risk, but if there is some legal problem with the business then that’s the seller’s risk. Emphasis mine
- jacquesm 6y ago
  There are quite a few of those M&A contracts that contain clauses against the business conditions getting worse outside certain bands and some that allow withdrawal for exactly that: changing market conditions. Without the text of the contract there isn't much to say about any of this.
- mronge 6y ago
  That's true but they may be able to cancel the contract based on a force majeure clause because of the global pandemic.
  - beerandt 6y ago
    Or a government restriction due to the pandemic, if not the pandemic itself.
  - csours 6y ago
    As Frere Jacques notes, it is almost pointless to speculate without the actual contract in hand. For instance, large events often have cancellation insurance, but they have found that the terms are much narrower than they expected when they signed the insurance contract.
- cmroanirgo 6y ago
  From the article: > the co-working company and SoftBank agreed to a set of performance milestones that WeWork agreed to meet in exchange for the secondary liquidity. Such terms are customary in most financial transactions... SoftBank in its statement last week said that WeWork failed to meet a number of those performance requirements, and said that it was within its rights under the tender offer contract to walk away from the deal.
tomp 6y ago
Not a good analogy. The house already pretty much burned down before SoftBank agreed to (second) round of investment.
- worik 6y ago
  No it had not. I am a long way away but from what I can ell from he news I follow it has a good core business. It was run by a crook, who still has his hooks in, but the real estate business was sound. Until all the income from short term leases evaporates due to curfews and the long term leases they pay keep ticking....
  - eldavido 6y ago
    It is a good core business. The press is just trying to spin this into some big exciting story as they are wont to do, this time playing up the "How the mighty fall" and "David v Goliath" angle. I am a paying wework customer as well as a person who owns commercial real estate. There's not much to see here. Some investors paid too much. Let's all let them take their losses and move on. I'm tired of hearing every tech-hating, New York Times-reading, "in the know" person having some huge opinion on this.
  - greglindahl 6y ago
    Literally the entire real estate industry thought WeWork would go bankrupt in the first downturn, due to the focus on short-term leases and the mismatch with WeWork's underlying long-term leases. Well, here we are. You might try finding more diverse news sources. Even comments on HN pointed out this particular issue.
linuxftw 6y ago
> If 2 days before closing the house burns to the ground I can walk away. The seller would be in default rather than you having a contingency. I'm sure there's plenty of case law in every jurisdiction covering this scenario. Maybe SoftBank had no intention of buying out WeWork and were just using it as some sort of ploy to dig deeper into their books, etc.

JumpCrisscross 6y 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 6y ago
True 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 6y ago
Conflict-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.
- JumpCrisscross 6y ago
  > All that is needed is a weighting factor between the two loss functions Assuming this is sarcasm. If not, it’s an employment guarantee for litigators.
  - dheera 6y ago
    The ligitators can check to see if the loss function was evaluated correctly to within some sigma, and the ligitators can be robotic as well, in a couple decades from now. Most of what lawyers do is apply patterns they know from before for $900/hr, and that's exactly what machine learning is good at. SoftBank is all about AI and I actually don't think AI lawyers would be a bad thing; it would be nice if they futurized their own corporate and investment structure by design instead of following today's defaults, including "fiduciary duty" in an absolute sense, which I think is an antiquated concept for a society 100 years from now. SoftBank has the power to redesign concepts such as boards, shares, equity from the ground up, and they should be doing experiments with those ideas.
- saghm 6y ago
  > Conflict-of-interest is a human-invented notion That doesn't seem like a particular relevant critique here; it's not like naturally occurring corporate boards or some universal law of fiduciary duty are things we've observed outside of humanity. Why shouldn't human-invented heuristics apply to situations that as far as we know only occur in human interactions?
  - RHSeeger 6y ago
eigenvalue 6y ago
In this case SoftBank could recuse its board members from any discussion of this matter, which would sidestep the problem. The SoftBank board's duty to SoftBank investors is much more important than any loss of control in WeWork that would stem from recusing itself.
propinquity 6y ago
Wouldn't the responsibility be to the partners in Vision Fund rather than SoftBank's share holders?

deleted 6y ago

[deleted]

gullyfur 6y ago

Has anyone estimated how many months WeWork has until it collapses?

devmunchies 6y ago
probably better to measure in WEeks.
- jzl 6y ago
  Lol. We-eeks.
eldavido 6y ago
Is this informed by any data or facts whatsoever? Last time I checked, WeWork was a going concern with 600,000 customers more or less happy with their service. What would tank them? Are their lease obligations too large and can't be renegotiated? This entire thing is blown so far out of proportion. Like Tesla, it seems like a company that mostly makes products people like, whose equity is extremely hard to value. Maybe WeWork is worth $40 billion, maybe it's more like Regus and worth $4. This only affects you if you're a shareholder. As a WeWork customer, I absolutely couldn't care less about any of this nonsense. I'm reminded of a classic finance quote: "If I owe you $100, I have a problem. If I owe you $100 million, you have a problem." This summarizes the dynamic between WeWork and its landlords right now.
- Mtinie 6y ago
  "WeWork was a going concern with 600,000 customers more or less happy with their service." This may have been true in December 2019, but with a global patchwork "stay at home" regulations in place, I suspect co-work spaces (especially of the open floor plan variety) are devoid of paying customers. That presumes they're even allowed to be open right now. I don't remember offhand what the average WeWork customer generates in revenue or if the bulk of those customers are month-to-month vs. mid- to long-term contracts. If the former I don't see why those customers would continue to pay for space and services they don't have the ability to use.

ConcernedCoder 6y ago

Cue: Kenny Rogers music: "...You gotta know when to fold'm.... know when hold'm.... know when to walk away... and know when to run!"

draw_down 6y ago
Come on

LatteLazy 6y ago

The fact they're suing does imply that there were not contingency clauses. Otherwise, why piss off your largest investor/shareholder/backer?

dreamcompiler 6y ago
The "pissing off Softbank" horse has left the barn. Now WeWork is just trying to extract as much unburned rubber from its tire fire as it can.
- LatteLazy 6y ago
  To extract any rubber at all, they will need to win. Given they have a binding agreement with Softbank (per the article), and they are willing to call in the lawyers, they must think they have a case...
  - MrsPeaches 6y ago
    Whilst IANAL, in my legal dealings I have been consistently surprised by how weak a case a desparate party is willing to bring to court.

csours 6y ago

Quoting from Matt Levine: > That is a good little window into mergers-and-acquisitions lawyering. SoftBank’s agreement with WeWork isn’t public, but presumably it says something like “SoftBank can cancel the tender if there are any material government restrictions on WeWork’s business,” but it doesn’t say something like “SoftBank can cancel the tender if lots of customers cancel their WeWork memberships.” The very rough general rule in mergers and acquisitions is that if business conditions get worse, that’s the acquirer’s risk, but if there is some legal problem with the business then that’s the seller’s risk. Emphasis mine

jacquesm 6y ago
There are quite a few of those M&A contracts that contain clauses against the business conditions getting worse outside certain bands and some that allow withdrawal for exactly that: changing market conditions. Without the text of the contract there isn't much to say about any of this.
mronge 6y ago
That's true but they may be able to cancel the contract based on a force majeure clause because of the global pandemic.
- beerandt 6y ago
  Or a government restriction due to the pandemic, if not the pandemic itself.
- csours 6y ago
  As Frere Jacques notes, it is almost pointless to speculate without the actual contract in hand. For instance, large events often have cancellation insurance, but they have found that the terms are much narrower than they expected when they signed the insurance contract.
cmroanirgo 6y ago
From the article: > the co-working company and SoftBank agreed to a set of performance milestones that WeWork agreed to meet in exchange for the secondary liquidity. Such terms are customary in most financial transactions... SoftBank in its statement last week said that WeWork failed to meet a number of those performance requirements, and said that it was within its rights under the tender offer contract to walk away from the deal.

tomp 6y ago

Not a good analogy. The house already pretty much burned down before SoftBank agreed to (second) round of investment.

worik 6y ago
No it had not. I am a long way away but from what I can ell from he news I follow it has a good core business. It was run by a crook, who still has his hooks in, but the real estate business was sound. Until all the income from short term leases evaporates due to curfews and the long term leases they pay keep ticking....
- eldavido 6y ago
  It is a good core business. The press is just trying to spin this into some big exciting story as they are wont to do, this time playing up the "How the mighty fall" and "David v Goliath" angle. I am a paying wework customer as well as a person who owns commercial real estate. There's not much to see here. Some investors paid too much. Let's all let them take their losses and move on. I'm tired of hearing every tech-hating, New York Times-reading, "in the know" person having some huge opinion on this.
- greglindahl 6y ago
  Literally the entire real estate industry thought WeWork would go bankrupt in the first downturn, due to the focus on short-term leases and the mismatch with WeWork's underlying long-term leases. Well, here we are. You might try finding more diverse news sources. Even comments on HN pointed out this particular issue.

linuxftw 6y ago

> If 2 days before closing the house burns to the ground I can walk away. The seller would be in default rather than you having a contingency. I'm sure there's plenty of case law in every jurisdiction covering this scenario. Maybe SoftBank had no intention of buying out WeWork and were just using it as some sort of ploy to dig deeper into their books, etc.