SoftBank Group offered nearly $10 billion on Monday to WeWork and its shareholders under a takeover plan that would keep the US office-space sharing start-up afloat and lead to the exit of its chairman Adam Neumann, sources said.
WeWork could run out of cash as early as next month without new financing, sources said, after the company pulled plans in September for an initial public offering.
It abandoned the IPO when investors questioned its large losses, the sustainability of its business model and the way WeWork was being run by co-founder Mr Neumann, who gave up his chief executive title last month and now serves as board chairman.
WeWork owner We Company's board will meet on Tuesday to evaluate SoftBank's offer against an alternative financing proposal from JP Morgan Chase the sources said.
JP Morgan faces challenges in putting together a debt package for WeWork, because it has not underwritten it and is trying to find banks and institutional investors to back it.
SoftBank has offered $5bn in new money to WeWork in the form of debt. It is also proposing to accelerate a previous $1.5bn equity commitment to WeWork in the form of warrants that are due in April. the sources said.
This commitment was made in January at a $47bn valuation, but SoftBank is now seeking to renegotiate it at a valuation of about $8bn.
SoftBank is also proposing to launch a tender offer for up to $3bn to acquire WeWork shares from existing investors and insiders, including Mr Neumann. Based on the outcome of the tender offer, SoftBank could own between 60 per cent and 80 per cent of WeWork but will seek to avoid consolidating the company on its books.
SoftBank and its $100bn Vision Fund already own about a third of WeWork through previous investments totalling $10.6bn.
Mr Neumann could step down from We Company's board as part of the deal with SoftBank and become an adviser. SoftBank chief operating officer Marcelo Claure would succeed Mr Neumann as chairman.
WeWork, SoftBank and JP Morgan declined to comment. A spokeswoman for Mr Neumann also declined to comment.
SoftBank has lined up Mizuho Financial Group as part of its syndication of the $5bn debt package. The package comprises letters of credit for more than $1bn, as well as senior secured and subordinated bonds.
Mizuho declined to comment.
We Company’s seven-member board tasked two directors with representing the interests of all investors in the company by sitting on the special committee considering the financing plans.
One is Bruce Dunlevie, who is a general partner at WeWork shareholder Benchmark Capital. The other is Lew Frankfort, who is the former chief executive of luxury handbag maker Coach.
Artie Minson, previously WeWork’s chief financial officer, and Sebastian Gunningham, a vice chairman at the company, are now serving as its co-chief executives.
Facing a cash crunch, WeWork is seeking to slow down its expansion, reducing the number of new property leases it is taking on.
We Company’s board has also agreed on a cost-cutting plan that includes layoffs. The cuts will occur over the coming weeks.
Mr Neumann's exit from The We Company's board would represent a dramatic fall from grace, given Wall Street's expectations earlier this year that he would lead one of corporate America's most eagerly anticipated stock market debuts.
While Mr Neumann's investors were willing to entertain his eccentricities since co-founding WeWork in 2010, his free-wheeling ways and party-heavy lifestyle came into focus once he failed to get the company's IPO under way.
During the attempts to woo IPO investors last month, Mr Neumann was criticised by corporate governance experts for arrangements that went beyond the typical practice of having majority voting control through special categories of shares.
These included giving his estate a major say in his replacement as chief executive, and tying the voting power of shares to how much he donates to charitable causes.
Mr Neumann had also entered several transactions with We Company, making the company a tenant in some of his properties and charging it rent. He has also secured a $500m credit line from banks using company stock as collateral.
Mr Neumann, 40, is not the first founder of a major start-up to be forced to step down. Uber Technologies co-founder Travis Kalanick resigned as chief executive of the ride-hailing start-up in 2017, after facing a rebellion from his board over a string of scandals, including allegations of enabling a chauvinistic and toxic work culture.
