NEW YORK (Reuters) – WeWork owner, The We Company, has formed a special board of directors to evaluate a $ 5 billion funding line from its largest shareholder SoftBank Group Corp ( 9984.T ) ) and the major lender JPMorgan Chase & Co ( JPM.N ), said four people familiar with the matter on Wednesday.
FILE PHOTO: The WeWork logo appears outside a New York City area of New York, January 8, 2019. REUTERS / Brendan McDermid / File Photo
The Office-Space Committee Sharing Company in an effort to reverse SoftBanks funding considerations influence, said the sources. The Japanese technology conglomerate owns about one-third of WeWork, and any new equity investment could potentially give it control.
WeWork rushes to raise new capital after scrapping plans last month for an IPO. Sources have said it could run out of cash as early as November unless it secures new funding.
A spokeswoman for WeWork declined to comment. The directors of the company did not immediately respond to requests for comment.
The committee will have only two members – both directors of the We Company, whose mission is to represent the interests of all investors in the company, the sources said.
One is Bruce Dunlevie, who is a general partner of WeWork shareholder Benchmark Capital, according to the sources. The other is Lew Frankfort, who is the former CEO of luxury handbag manufacturer Coach, they added.
SoftBank does not want a representative, the sources said. It is represented on We Company & # 39; s seven-member board by its president Ron Fisher. Former Goldman Sachs Group Inc ( GS.N ) investment banker Mark Schwartz, who served as SoftBank's director until earlier this year, also sits on the board.
WeWork co-founder Adam Neumann, who resigned as CEO last month but retained his role as chairman, has also not sat on the committee, according to sources, who requested anonymity in the discussion of the confidential scheme.
WeWork canceled its IPO following the investor's concern about loss losses, business model and how the company was run. The estimated valuation fell from $ 47 billion in January to as low as $ 10 billion last month.
In response, WeWork seeks to slow the expansion, reduce the number of new leases and take up layoffs.
SoftBank has proposed up to a $ 5 billion investment in WeWork two sources said. It also wants to renegotiate an earlier commitment for a $ 1.5 billion investment in the form of warrants due in April at a valuation of $ 47 billion, the sources added. It has already invested around $ 10 billion in WeWork.
JPMorgan is scrambling for the market to increase funding commitments from banks and bond investors for as much as $ 5 billion, one source said. It has not agreed to take out the debt, and WeWork wants to see how much debt can be taken up without leading to a dilution for existing shareholders before we make a decision, the source added.
WeWork may attempt to combine the SoftBank and JPMorgan proposals in one form or another, according to the sources.
SoftBank declined to comment on this story. JPMorgan did not immediately respond to requests for comment.
CONFLICTS OF INTEREST
Listed companies form special board committees to safeguard the interests of minority shareholders when considering transactions, usually when some directors represent conflicts of interest. It is less common for a private company like WeWork to form a special committee.
However, WeWork has been vulnerable to criticism of the company's management schemes because of Neumann's previous grip on the company.
Neumann's shares used to have the same voting power as 20 We Company shares, before agreeing to partially reduce the hold last month – reducing the ratio to 3-1 – in a failed attempt to make a stock market listing more attractive to investors .
Neumann had also entered into several transactions with WeWork, which made the company a tenant in some of his personal properties and charged it for rent. He has also secured a $ 500 million credit limit from banks that use the company's shares as collateral.
When Neumann resigned as CEO last month under pressure from SoftBank, Benchmark Capital and other investors, he said he did so because the investigation directed at him became a "significant distraction".
Artie Minson, former CFO of WeWork, and Sebastian Gunningham, who was the company's deputy director, now serve as its CEOs.
Reporting by Joshua Franklin and Greg Roumeliotis in New York and Anirban Sen in Bengaluru; Additional reporting by Koh Gui Qing, Mike Spector and Sheila Dang in New York; Editing by Martin Howell and Lincoln Feast.