WeWork Sues SoftBank After $3B Share Offer Deal Sours

WeWork is suing SoftBank Group Corporation, SFTBY after it canceled plans to purchase $3 billion of WeWork’s shares.

What Happened

A lawsuit filed by the special committee of WeWork’s board of directors, in the name of We Co., the parent organization of WeWork in Delaware, alleges SoftBank was in breach of contract and “breach of SoftBank’s fiduciary obligations to WeWork’s minority stockholders, including hundreds of current and former employees,” reported the Wall Street Journal.

The board is comprised of Benchmark general partner and veteran investor, Bruce Dunlevie, and former Coach Inc. CEO, Lewis Frankfort.

Softbank’s purchase of WeWork stock would have resulted in significant monetary gains for the former WeWork CEO Adam Neumann, who holds the right to sell up to 970 million in shares, along with other investors, as well as current and former employees.

The complaint by WeWork states that SoftBank’s refusal to complete the purchase negatively affects the workspace solutions company because $1.1 billion in debt financing depended on the deal closure.

The special committee warned, “liquidity could also be adversely affected by SoftBank’s refusal.”

Why It Matters

SoftBank has said it will not pursue the purchase of WeWork’s shares because the company did not meet agreed terms such as obtaining necessary antitrust approvals and carrying out the restructuring of its business in China.
SoftBank has committed more than $14.25 billion to WeWork, which includes $4.5 billion since the buyout agreement.

The Japanese group issued a statement last week saying that Adam Neumann, his family, and other select institutional investors stood to benefit the most from the tender offer. 

A SoftBank spokesperson described the lawsuit to the WSJ as a “mistaken attempt to force SoftBank to purchase their shares when it is not legally obligated to do so.”

SoftBank has informed WeWork shareholders that government investigations into WeWork, including “multiple, new and significant” pending criminal investigations since the agreement was signed in October, allowed it to withdraw from the share purchase agreement.

SoftBank had expected to record a non-operating loss for the financial year ended March 2020 if the agreement was carried out. However, this loss will not be recorded now due to the termination of the agreement.

Price Action

SoftBank's shares closed 1.67% higher at $18.90 in the OTC market on Tuesday.