Office leasing firm WeWork has filed a lawsuit against SoftBank for bailing out on a $3 billion share buyout it agreed to in October 2019.
WeWork is suing SoftBank for abandoning their $3 billion share buyout agreement and claims that the Japanese firm is inventing reasons to back out of the plan amidst mounting financial pressure from the coronavirus pandemic.
The said agreement is a tender offer that was part of a rescue package agreed to by the two companies late last year. SoftBank stepped in with the roughly $10 billion package after WeWork failed with its initial public offering (IPO) and almost faced insolvency.
Under the agreement, WeWork’s potential valuation would significantly fall from its peak of $47 billion to around $8 billion. Following the failure of its IPO, the We Company was considering two financing options to avoid running out of money, one was the takeover and the other was a possible loan package put together by JPMorgan Chase.
WeWork filed the lawsuit with the Delaware Court of Chancery on Tuesday. According to the special committee of the company's board, SoftBank and its chief executive officer (CEO) Masayoshi Son are now suffering from "buyer's remorse."
In response to the suit, SoftBank released a statement calling it "a desperate and misguided attempt" to rewrite last year's agreement. The conglomerate emphasized again that the share purchase was subject to certain conditions.
Last week, SoftBank identified several reasons why WeWork failed to fulfill the conditions required for the agreement’s completion.
These include the existence of pending criminal and civil investigations into the company, global restrictions related to Covid-19 that are affecting its operations, and the failure to restructure a joint venture in China.
However, WeWork's special board is countering SoftBank’s claims by saying in the lawsuit that the conglomerate was facing an "increasingly dire" financial situation and took "desperate" actions to back out of the share buyout, including abandoning the restructuring of the Chinese joint venture.
SoftBank has been facing increased financial pressure due to losses incurred by Son's $100 billion Vision Fund, which pulled down the company’s profits.
Activist investor Elliott Management, which revealed a substantial stake in the conglomerate, expressed earlier this year that it was pushing for changes to improve performance at SoftBank.
The financial impact of the coronavirus pandemic has also reversed a large part of the Vision Fund's paper gains in public companies such as Uber.
However, the special committee of WeWork's board argued that the financial stress and pressure from activist investors do not mean SoftBank can abandon the share buyout.
In a statement, the special committee said: "SoftBank's failure to consummate the tender offer is a clear breach of its contractual obligations ... as well as a breach of SoftBank's fiduciary obligations" to WeWork's stockholders.
SoftBank’s decision to back out from would greatly affect former WeWork CEO Adam Neumann as the October 2019 agreement included an offer to buy up to $975 million worth of the WeWork founder's shares.
According to SoftBank, Neumann, his family and Benchmark Capital would have benefited the most from the share buyback as their combined equity comprises "more than half of the stock tendered in the offering."
