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SoftBank Does Want To Take Over Liabilities Of WeWork: Reuters

SoftBank Does Want To Take Over Liabilities Of WeWork: Reuters
Japan’s investment company SoftBank Group Corp does not want to take the onerous lease obligations of the U.S. office-space sharing firm WeWork but want to pick up a controlling stake in the company, claimed a report from the news agency Reuters citing information from people with knowledge of the matter.
A financing lifeline of $5 billion is being offered by SoftBank to WeWork while the same amount of debt from banks and institutional investors is being offered by JPMorgan Chase & Co and both the proposals are being closely scrutinized by The We Company, the parent of New York-based office space sharing company.
Reports have said that if there is no new financing lease of life, WeWork could burn up all its cash at hand as early as next month. The company is reeling under the impact of its failed attempt to launch an IPO last month. The planned IPO was scuttled by the company after the continued losses made by it were questioned by investors along with the financial sustainability of its business model and the management of the company by its co-founder and former CEO Adam Neumann, who quit as the CEO but still remains the board chairman of the company.
The We Company has also formed a special board committee to closely consider and decide on the investment proposals and avenues. The committee does not have either Neumann or any representative from SoftBank.  

SoftBank and its $100 billion Vision Fund own about a third of WeWork through previous investments totaling $10.6 billion.
According to sources quoted in the Reuters report, WeWork has been valued at less than $10 billion under the latest offer by SoftBank which is significantly smaller than the valuation of $47 billion that SoftBank had given to WeWork when it had last invested in the company in January during a fundraising round.
SoftBank’s investment can make it a majority stake holder of WeWork even though the US based company is yet to decide on the investment being divided into equity and debt. Sources also said that the investment could give SoftBank the controlling voting rights of WeWork and could use that to consolidate the loss-making company on its balance sheet.
This could result in SoftBank taking over the liabilities of WeWork which is substantial and include long-term leases for office space which is redone and rented out to clients under short-term contracts, the report said. According its most recent public financial disclosure, as of end of June, the long term lease obligations is $18 billion for WeWork. It also had $1.3 billion in net debt.
As of the end of June, the net debt of SoftBank itself is about 5 trillion yen ($46 billion) and therefore the firm is not very keen on taking on the liabilities of WeWork. According to the Japanese firm’s latest quarterly earnings statement, its net debt is more than half of its 9 trillion yen market capitalization.

Christopher J. Mitchell

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