WeWork Rescue In Jeopardy As SoftBank Shrinks

WeWork Rescue In Jeopardy As SoftBank Shrinks

almost 4 years ago2 mins

With the world’s workers stuck at home, it’s a bad time to be in the office space business. And there was more woe for WeWork late Tuesday as its biggest investor backed away from a $3 billion bailout of the coworking company 😭

What does this mean?

Six months ago, WeWork was planning an initial public offering (IPO) valuing the firm at $47 billion. But with concerns mounting over its $2 billion of annual losses, WeWork’s largest private investor, Japanese tech conglomerate SoftBank, called a timeout.

With WeWork running out of cash, SoftBank – which, partly through its $100 billion Vision Fund, had already ploughed $10 billion into the company – was subsequently forced to take an even larger controlling stake in an attempt to turn things around.

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The accompanying reduction in WeWork’s value to a mere $8 billion helped SoftBank post its first quarterly loss in 14 years – and the Japanese investor may now be getting cold feet.

As well as handing WeWork $5 billion as part of its bailout, SoftBank was supposed to buy back $3 billion of WeWork shares from other private investors this month. On Tuesday, however, SoftBank claimed that an ongoing US investigation into the startup’s affairs may release it from that obligation 🚨

Why should I care?

SoftBank’s stubbornness couldn’t have come at a worse time for WeWork. Its controversial business model involves signing up for long-term office leases itself while offering others short-term desk space – leaving it vulnerable to the economic disruption of coronavirus.

The entire commercial real estate industry is in trouble right now, however. Several leading UK funds focused on the sector froze investor withdrawals this week due to uncertainty around property valuations 🥶

SoftBank’s share price, meanwhile, fell 11% on Wednesday as recent declines in the values of its investments and plans to buy back $5 billion of its own stock led to a downgrade of the firm’s credit rating. Vision Fund 2.0 looks a long way off

SoftBank’s stock has underperformed the Japanese market recently (Source: WSJ)
SoftBank’s stock has underperformed the Japanese market recently (Source: WSJ)
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