SoftBank Group Corp. is in discussions to provide WeWork with roughly $5 billion of rescue financing in an effort to salvage one of the conglomerate’s biggest investments.
The funds will come directly from SoftBank, rather than its Vision Fund, according to a person familiar with the matter who asked not to be named because the talks are private. SoftBank, which already owns about a third of WeWork, would not amass a majority of voting rights, though its stake would increase, the person said. Part of the package may include nonvoting preferred stock.
News of the financing talks sent WeWork’s bonds to their biggest gain on record Wednesday. The jump of more than 8 cents on the dollar erased a record plunge a day earlier.
WeWork, reeling in the past few weeks since parent We Co. scrapped its initial public offering, and in danger of running out of cash as early as next month, has been pursuing a pair of rescue plans to shore up its finances — one from its largest shareholder SoftBank and another from JPMorgan Chase & Co. that would include a $5 billion debt package.
New York-based WeWork had been headed toward one of the year’s most hotly anticipated IPOs last month before prospective investors balked at certain financial metrics and flawed governance, turning the company into a cautionary tale of private market exuberance and costing the top executive his job. The fast-growing, money-losing startup had been counting on a stock listing — and a $6 billion loan contingent on a successful IPO — to meet its cash needs.
Billionaire Masayoshi Son, who controls investment powerhouse SoftBank, was instrumental in ousting WeWork’s controversial co-founder Adam Neumann, but is convinced the once high-flying startup can be turned around, a person familiar with the company’s thinking said recently. SoftBank has already plowed more than $10 billion into WeWork and holds one seat on the company’s seven-member board. It has been in advanced talks to acquire more shares at a significantly lower valuation than the $47 billion WeWork sported in January, two people familiar with those discussions said last week. The Japanese company had agreed to contribute at least another $1.5 billion to WeWork next April, according to the startup’s now-withdrawn prospectus for its IPO.
JPMorgan’s package, which has been the company’s preferred option, would be one of the riskiest junk-debt offerings in recent years. The plan has been met with skepticism from investors, who are concerned about the company’s ability to service the debt.
Representatives for WeWork and SoftBank declined to comment on SoftBank’s proposal. The Nikkei business newspaper reported details earlier Wednesday.
Son is facing a reckoning after repositioning SoftBank from a telecom operator into an investment conglomerate with stakes in scores of startups around the world. The success or failure of WeWork will likely be viewed as a statement on the overall standing of SoftBank, the judgment of its executives and its ability to raise cash for future ventures. But Son has made clear, in a recent interview with Nikkei Business magazine, how unhappy he is with how far short his accomplishments have fallen of his goals. SoftBank also put almost $8 billion into Uber Technologies Inc., whose shares have declined about 30 percent since its IPO earlier this year. Still, Son said he is convinced that WeWork and Uber will be substantially profitable in 10 years.
But first, SoftBank is looking at potential damage in the billions of dollars. Analysts at Sanford C. Bernstein & Co. estimate that the Vision Fund, SoftBank’s main investment vehicle, will have to write down $5.93 billion, with another $1.24 billion drop for the part of WeWork owned by SoftBank Group.