NEW YORK • SoftBank Group has scrapped an agreement to spend US$3 billion (S$4.3 billion) to buy WeWork stock from the co-working space's former chief executive Adam Neumann and other shareholders, despite threats of legal action from some members of the US-based company's board.
The Japanese conglomerate had agreed to buy the shares from Mr Neumann, Benchmark Capital and others as part of a bailout package last year, but notified stockholders in the middle of last month that conditions for the deal had not been met.
Yesterday, after the deadline for the deal passed, SoftBank confirmed it would end the offer, citing five conditions that were not satisfied by the closing date.
"SoftBank remains fully committed to the success of WeWork and has taken significant steps to strengthen the company since October, including newly committed capital, the development of a new strategic plan for WeWork and the hiring of a new, world-class management team," said SoftBank chief legal officer Rob Townsend.
"The tender offer was an offer to buy shares directly from other major stockholders and its termination has no impact on WeWork's operations or customers."
SoftBank shares rose 2.5 per cent while the broader Japan market fell. A WeWork committee of two independent directors voiced disagreement over SoftBank's decision and suggested that there may be legal action.
"The special committee is surprised and disappointed at this development, and remains committed to reaching a resolution that is in the best interest of WeWork and its minority shareholders, including WeWork's employees and former employees," the committee, made up of Benchmark Capital's Mr Bruce Dunlevie and another director, Mr Lew Frankfort, said in an e-mail statement.
"The special committee will evaluate all of its legal options, including litigation."
The share purchase was hammered out last October as part of SoftBank's rescue of WeWork, after the co-working company's failed initial public offering left it weeks away from running out of money. In the deal, the Japanese conglomerate would have taken a stake of almost 80 per cent in the company and bought US$3 billion in shares from investors as well as current and former employees.
Mr Neumann, ousted in the deal, was set to sell up to US$970 million in shares. The generous exit package angered many of his employees, thousands of whom had their jobs eliminated in the following months as The We Company, parent firm of WeWork, tried to cut its expenses.
WeWork signs long-term leases with landlords around the world and then rents the space to smaller firms and freelance workers.
In a letter to bond holders, it warned that it did not expect to hit its financial targets for this year.
Mr Townsend said: "Given our fiduciary duty to our shareholders, it would be irresponsible of SoftBank to ignore the fact that the conditions were not satisfied and to nevertheless consummate the tender offer."
In the past few weeks, the shareholder buyout deal has become increasingly contentious.
SoftBank sent the letter to WeWork investors saying it could withdraw from the agreement if certain conditions were not met by the deadline. It cited regulatory concerns and a handful of government investigations into WeWork, including from the United States Securities and Exchange Commission and the Department of Justice.
The two WeWork independent board directors responded, saying they would consider legal action if SoftBank pulled out. "Its excuses for not trying to close are inappropriate and dishonest," a spokesman for the directors had said in a statement.
The latest deal is separate from SoftBank's bailout of WeWork itself, a package that included US$5 billion in new financing and the acceleration of an earlier US$1.5 billion commitment.