How SoftBank plans to save WeWork
WeWork's board this morning will vote on whether to accept a rescue package from SoftBank or one arranged by JPMorgan.
The big picture: SoftBank's package includes a massive bribe... errr, I mean golden parachute... errr, I mean "consulting contract" for Neumann.
- But, as Axios first reported yesterday, there have been fairer votes in North Korea. Adam Neumann still controls the voting stock and he's got around 200 million reasons to support SoftBank.
The deal: In exchange, I'm told that he'll support the SoftBank transaction, give up his future voting rights, and step down as chairman. He'll also get a line of credit to help soften his existing liabilities, and get to participate big in a $3 billion tender offer for existing WeWork shares (at $20 a pop).
- J.P. Morgan and partners like Starwood Capital were willing to really extend themselves, but paying Neumann to go away was a bridge too far. As CNBC's Alex Sherman tweeted, Jamie Dimon will do anything for love, but he won't do that.
- As an aside: Dimon's personal involvement with WeWork, including in the IPO run-up, likely saves the jobs of underlings who otherwise could have been thrown under the bus.
- Multiple sources say that WeWork's co-CEOs, Artie Minson and Sebastian Gunningham, will resign. This does not appear to be at the request of SoftBank, which will name Marcelo Claure as executive chairman and then launch a CEO search.
- Minson and Gunningham did have a massive layoff plan ready to go, but now SoftBank will be in charge of the pink slips.
- SoftBank's new investment will come off its balance sheet, not from its Vision Fund.
- All WeWork shareholders, including employees and investors, are eligible to tender up to 33% of their shares. For Neumann that could mean up to a $970 million payday, but he'd still have around $2 billion of exposure.
The bull case is that SoftBank offers WeWork its best path to salvation, because it helps reward some long-term employees via the tender and isn't predicated on reviving the IPO for 2020. Plus, SoftBank clearly maintains sincere optimism for the business, or else it wouldn't throw so much good money after bad.
The bear case is that SoftBank enabled Neumann's worst impulses and, from the perspective of many insiders, helped set fire to the company's reputation in the first place. Plus, there's the head-scratching decision late last month to have Claure help identify cost-saving and revenue opportunities at WeWork, even though SoftBank already had two directors on the WeWork board.
The bottom line: You break it, you own it.