Masayoshi Son, the founder of Japanese Softbank, planned a majority take control of Adam Neumann’s WeWork for $16 billion in holdings at a company value of $36 billion, the Wall Street Journal reported on Wednesday. However, shareholders in Son’s Vision Fund, apparently Saudi and UAE government funds, have torpedoed the move.
According to WSJ sources, prominent investors have expressed concern about the acquisition plans for WeWork. This is because, despite its rising popularity, the joint work-space giant is losing money. Softbank and its affiliates in WeWork are still significant today: more than a fifth of the company.
The venture capital fund, established by Softbank in cooperation with the Saudi and UAE capital funds, invested $4.4 billion last year, with a commitment to invest an additional $4 billion, including a renewed pledge to invest $3 billion. The new investment gave the company a valuation of around $36 billion.
The Saudi and Abu Dhabi capital funds have veto power over certain investments of the fund. However, opposition to the WeWork program is uncharacteristic, as Son is often given the greatest freedom of action in his investments.
Waiting for losses
According to sources close to the matter, the deal that was blocked included an investment of $10 billion from Softbank to acquire most of the other shareholders’ holdings and another $6 billion in injecting new capital into the company over the next three years. As part of the deal, founder Adam Neumann would continue to dominate the company. The companies hoped to announce the deal early next year.
However, according to the report, the capital fund representatives questioned the rationale behind the doubling of the investment in WeWork and its high valuation. The company is expected to lose close to $2 billion this year, and capital funds fear that its business model will hurt it in the event of an economic crisis or a slowdown in real estate markets. Vision fund will finance at least part of the deal, but in the meantime Softbank is also examining other ways to finance it, including using its money, raising debt and bringing in additional investors.
It may also use revenue from its Japanese mobile division this week. But it should be taken into account that Softbank has its own debt – close to $158 billion at the end of September. Saudi Arabia has transferred $45 billion to the fund, but the involvement of the state and its heir apparent, Mohammed Ben Salman, in the murder of journalist Jamal Khashoggi and in the war with Yemen is arousing much criticism against it and calls for noncompliance to receive the fund’s money.