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Yesterday morning, WeWork’s board voted to accept a bailout offer from major investor SoftBank in a deal that values the company at around $8B — far less than WeWork’s $47B valuation in January.
WeWork was running out of options…
In fact, it had exactly 2.
Behind Door #1: JPMorgan — WeWork’s 3rd-largest external shareholder and the bank that had been tapped to take WeWork through its aborted IPO — offered WeWork $5B in debt financing (much of which would have become more expensive over time).
Behind Door #2: SoftBank — WeWork’s largest external investor — offered WeWork up to $3B in tender (AKA share buyouts for execs), $1.5B in accelerated equity (AKA cash it planned to invest next year), and a $5B round of debt financing.
The primary difference: JPMorgan’s package wouldn’t have diluted existing execs’ ownership stakes. SoftBank’s, alternatively, buys out up to $3B in shares — including a controversial $1.7B payout for founder Adam Neumann — and increases SoftBank’s stake in WeWork to around 80%.
Yes, SoftBank’s package was more complicated, but it was also… more.
So, what’s everyone gonna do now?
It ain’t pretty…
SoftBank will have to work fast to save WeWork, which lost $900m in the first half of the year. S-Bank will only recoup its investment if WeWork is sold or goes public at a valuation higher than $15B.
JPMorgan will receive $50m for months of work spent raising $5B that WeWork didn’t use — an outcome bound to disappoint the bank.
Neumann, who’s widely disliked, will sever most ties with WeWork — and walk off with $1.7B, a golden parachute that would make even Travis Kalanick blush.
Finally, thousands of WeWork employees are expected to be laid off — but, since WeWork doesn’t have enough money to pay their severances, those layoffs have been postponed for now.