SoftBank Group Corp (9984.T) said it has terminated a bid of $3 billion for additional WeWork shares negotiated with shareholders last year, threatening legal action and further plunging the floundering space business into crisis.
The tech investment giant said in a statement that it could no longer continue with the deal despite its obligation to its shareholders, citing criminal and civil investigations in the company, the inability of WeWork to restructure a joint venture in China and the effects of the coronavirus pandemic.
A WeWork board special committee said it was dissatisfied and is considering “all its legal options including lawsuits.”
The decision by SoftBank to cancel the bid means that the Japanese company is no longer obligated to go ahead with another $1.1 billion in debt funding for WeWork.
It also underlines the extent of the disarray at WeWork, which is undergoing drastic restructuring and whose earnings are at risk as a result of the pandemic, several countries are implementing orders to stay home.
WeWork is in real trouble and the withdrawal of SoftBank from the purchase of shares significantly worsens the situation,” Richard Windsor, an independent analyst, wrote in a note.
The company, which lost $1.25 billion in the third quarter, last week assured investors it had $4.4 billion in equity and capital investments and could weather the downturn.
The tender offer, which would have benefited only a small group of shareholders including the dismissed co-founder Adam Neumann was accepted in October as part of SoftBank’s bailout package after WeWork’s IPO proposals had flopped. Investors were worried about their profits, as well as a business model involving long-term leases and short-term room rentals.
In November, sources said WeWork was being prosecuted by the New York State Attorney General, investigating whether Neumann, indulged in self-dealing to enrich himself. A Neumann spokesperson at the time declined to comment.
SoftBank said in its statement that there were “many, recent, and important” ongoing criminal and civil inquiries in which authorities have also sought details on the funding activities and correspondence with investors from WeWork.
SoftBank itself has been an under-financial strain, with souring tech bets placing it under pressure from activist investor Elliott Management and driving it into a radical commitment to raise $41 billion by selling down core assets to raise cash for share buybacks and slash debt.
On Wednesday, a merger of its U.S. wireless unit Sprint with TMobile US (TMUS.O) was completed, which will provide an undetermined benefit to be booked in the quarter ending June and will reduce the burden on its balance sheets.
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