SoftBank seeks to avoid WeWork's commitments with new investments: sources

NEW YORK (Reuters) – SoftBank Group Corp. ( 9984.T ) seeks to become a majority owner of WeWork without taking on the mandatory leases of the US office-sharing company, according to people familiar with the matter.

SoftBank offers a $ 5 billion funding line as The We Company, the parent to New York-based WeWork, is considering a proposal from JPMorgan Chase & Co ( JPM.N ) on a debt package of similar size from banks and institutional investors.

WeWork could run out of cash next month without new funding, sources say, after the company withdrew plans in September for an initial public offering (IPO). It left the IPO as investors questioned the big losses, the sustainability of the business model and the way WeWork was run by its co-founder and former CEO Adam Neumann, who now serves as chairman.

Over the weekend, a special board of directors set up by The We Company worked to evaluate the funding proposals, funded by the influence of SoftBank and Neumann, and worked around the clock with their advisors to reach a consensus, the sources said. The negotiations could be triggered next week, one of the sources warned.

SoftBank and the $ 100 billion Vision Fund own approximately one-third of WeWork through previous investments totaling $ 10.6 billion.

SoftBank's latest offering values ​​WeWork at less than $ 10 billion, according to two sources, a fraction of $ 47 billion it awarded it in January in a previous round of fundraising.

RENTAL OBLIGATIONS

While the division of SoftBank's contribution between equity and debt is still negotiated, the investments can make it the majority owner of WeWork. If this were to be translated into formal voting control for SoftBank, it could force it to consolidate the loss-making company on the balance sheet, the sources said.

This, in turn, could cause SoftBank to assume WeWork obligations, which include long-term leases for office space that it refurbishes and leases under short-term contracts, according to the sources. WeWork had $ 18 billion in long-term leases from the end of June, according to the latest public financial disclosure. It also had $ 1.3 billion in net debt.

SoftBank has been keen not to burden its balance sheet further, given its net debt of around 5 trillion yen ($ 46 billion) at the end of June, more than half of the market value of 9 trillion yen, according to the Japanese technology conglomerate's latest quarterly income statement.

One way for SoftBank to avoid assuming formal control of WeWork that would lead to accounting consolidation would be to accept non-voting shares for any equity investment. However, it is not clear how SoftBank plans to structure the agreement.

SoftBank also wants to negotiate with WeWork a previous commitment for a $ 1.5 billion investment in warrants due in April at a valuation of $ 47 billion, according to the sources.

The sources asked not to be identified because the overlays are confidential.

A spokeswoman for WeWork declined to comment.

LAYOFFS COMING

In the face of a cash crunch, WeWork is trying to slow the expansion, reducing the number of new real estate contracts they take on.

The board of We Company has also agreed on a cost-saving plan that includes layoffs, two sources said, without divulging further details. The cuts will happen in the coming weeks, the sources added.

Job cuts in the United States could come in the first week of November, one of the sources said. Loss of work is also expected in other parts of the world, the source added.

We Company & # 39; s seven-member board had two directors in charge of representing the interests of all investors in the company by sitting on the special committee and reviewing the funding plans, Reuters reported earlier this week.

One is Bruce Dunlevie, who is a general partner of WeWork shareholder Benchmark Capital. The other is Lew Frankfort, who is the former CEO of luxury bag manufacturer Coach.

The board's advisors include investment bank Perella Weinberg Partners LP and law firms Skadden, Arps, Slate, Meagher & Flom LLP and Wilson Sonsini Goodrich & Rosati, one of the sources said.

Representatives of Perella Weinberg, Skadden and Wilson Sonsini did not immediately respond to requests for comment.

JPMorgan has not agreed to sign the debt package, and WeWork is waiting to see how much capital the bank will be able to raise from other lenders and credit investors. The debt package is split between about $ 1 billion in secured debt, $ 2 billion in unsecured debt and $ 1.5 billion to $ 2 billion in credit letters, two sources said.

A spokesman for JPMorgan declined to comment.

WeWork may try to combine SoftBanks and JPMorgan financing packages in one form or another, after the latter has completed its debt financing efforts, the sources said.