
WeWork sues SoftBank over canceled $3B tender offer - dionmanu
https://techcrunch.com/2020/04/07/wework-sues-softbank-in-intensifying-crisis-over-canceled-3b-tender-offer/
======
code4tee
Quote: WeWork’s board said that it “regrets the fact that SoftBank continues
to put its own interests ahead of those of WeWork’s minority stockholders.”

Of course they’re going do to that, it’s called fiduciary duty to their own
stakeholders! Such diligence is something WeWork’s board seemed to casually
overlook for far too long.

At this point why would SoftBank buy WeWork shares that are in all likelihood
worth little or perhaps even worthless. They’re deciding to cut their losses
and move on.

If I sign a contact to buy a house it still has contingency clauses. If 2 days
before closing the house burns to the ground I can walk away. Obviously I
don’t want to buy a burning pile of rubble. SoftBank is walking away from
buying a burning house and that makes complete sense.

~~~
csours
Quoting from Matt Levine:

> That is a good little window into mergers-and-acquisitions lawyering.
> SoftBank’s agreement with WeWork isn’t public, but presumably it says
> something like “SoftBank can cancel the tender if there are any material
> government restrictions on WeWork’s business,” but it doesn’t say something
> like “SoftBank can cancel the tender if lots of customers cancel their
> WeWork memberships.” _The very rough general rule in mergers and
> acquisitions is that if business conditions get worse, that’s the acquirer’s
> risk, but if there is some legal problem with the business then that’s the
> seller’s risk._

Emphasis mine

~~~
mronge
That's true but they may be able to cancel the contract based on a force
majeure clause because of the global pandemic.

~~~
csours
As Frere Jacques notes, it is almost pointless to speculate without the actual
contract in hand.

For instance, large events often have cancellation insurance, but they have
found that the terms are much narrower than they expected when they signed the
insurance contract.

------
llsf
I read that Wework had $4B in the bank at the beginning of the year. Also they
are actively trying to reduce their own rent up to 30% from their landlords.
And at the same time Wework gives up to 50% discount to its own large tenants,
so they can stay during this hard time. No idea how long it can operate like
that. If Wework had to crash, I am concerned for the whole US commercial real-
estate. Wework is renting so many square feet, that it could be a tsunami of
empty offices. Hopefully, current final tenants could work something with the
landlords to stay. Either Softbank is trying to get a better deal... or they
already know that it is not salvageable anymore.

~~~
JumpCrisscross
> _WeWork is renting so many square feet_

WeWork is big. CRE is huge. WeWork is not even among the top ten largest
lessees in America.

~~~
DamnYuppie
Do you mean CBRE? Regus is also very large in the rental space.

~~~
csmiles
I think the parent is referring to “Commercial Real Estate” generally, not
CBRE the firm.

Though as an aside, CBRE is launching its own co-working arm named “Hana.”

------
jacquesm
A big chunk of their intensifying crisis will be the drying up of whatever
income they still had. Short term rentals are great for the renters: easy to
say "stop now", and that's exactly what this COVID-19 crisis has done for many
companies. If they were using WeWork before they are now using it less or not
at all.

~~~
mekoka
From a previous piece also by techcrunch
[https://techcrunch.com/2020/04/02/softbank-terminates-3bn-
te...](https://techcrunch.com/2020/04/02/softbank-terminates-3bn-tender-offer-
for-wework-shares/)

 _WeWork’s handling of the coronavirus crisis has also caused some rifts with
its membership, with press reports of members angry at it for refusing refunds
for spaces they can’t (in good conscience) use. It has also faced criticism
from members angry it’s prioritizing rent collection from now very cash-
strapped small businesses rather than closing down during a public health
crisis._

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bruceb
Not surprising, was wondering how SoftBank seemingly walked away so easily.

If you are Softbank do you use this Covid crisis to back WeWork in to a corner
even if their suit is legitimate as they might run out of cash before it
reaches the courts?

From what I understood SoftBank already owns a majority of WeWork so how does
the company they own, suing them work?

~~~
gnopgnip
There is still a fiduciary duty to the minority shareholders by the majority
shareholder

~~~
dragonwriter
No, but there's a fiduciary duty of the management (even if installed by the
majority shareholder) to the minority shareholders.

It's a fine distinction, especially when those roles are often exercised by an
overlapping set of individual people, but it's the management as a collective
agent of the shareholders that owes a fiduciary duty to all, including
minority, shareholders. Shareholders, as such, do not owe each other or the
firm a fiduciary duty.

------
LatteLazy
Pure opinion:

On the one hand, they're a real estate company masquerading as a tech company
(and getting the funding and valuation unicorns would hope for), and with
Coronavirus they have a serious cashflow problem.

On the other hand, there will be a burst of people (re)starting small
businesses and wanting space on a flexible basis in a few months time...

~~~
jzl
The market doesn't demand that a monolithic entity like WeWork exist in order
for co-working spaces to exist.

Read up on WeWork's history and what happened with the Vision Fund investment.
The only reason there are so many WeWorks is because they were given so much
money that they didn't know what to do with it. And look what happened to that
investment.

~~~
LatteLazy
I don't think we will ever know the full tide of BS that was the WeWork/vision
fund relationship. It suits both sides to not be forthcoming.

That said, I know people who use multiple WeWork locations in the same city
depending on where they are for client meetings. Plus many other similar
office space companies were not as flexible as WeWork (rent an office, it has
to have walls, no you can't just get one desk in an open area). And some
people really like the "atmosphere".

So who knows?

Personally, I think the reason we have a market is to get these decisions
right. I'm aware my own views on the subject represent about 0.000000001% of
humanity. So I may dislike WeWork but that doesn't mean they won't double in
size and show a huge profit. Or I may love them but that doesn't mean its not
a giant ponzi scheme.

Its important I do not to get attached to my own opinions as they're so often
wrong :D

Again, just more random musings from me.

------
readhn
Thumbs up to Softbank for dodging a bullet! What a timing!

I bet they are smiling ear to ear - could have been one hell of a blow for
them - buying quickly deflating unicorn startup sitting on a bunch of
depreciating assets.

------
Simulacra
Does this mean Adam won't get his billions?

~~~
grugagag
Yes!

But he still has hunderds of millions..

~~~
Simulacra
Good but ..oh well.

------
tibbydudeza
Well shared office space is not a good buy these days considering the corona
pandemic.

------
faramarz
Wow, that won't bode well with the other investors I imagine. At some point in
the near future, other players or current investors will have to either pump
more cash into this investment or let it go bust. damn, what a story though.
rapid growth to rapid decline.

------
duxup
I wonder after the mess of WeWork plays out:

Who buys all those buildings / assets?

There have to be some pretty good deals out there considering a collapse of
WeWork / fire sale and the economy for someone who can manage some these
assets.

~~~
worik
They did not own the buildings.

Real estate in big cities is (generally speaking) quite a closed shop. They
had leases.

~~~
hkmurakami
They did buy some small number of buildings

[https://therealdeal.com/2019/11/01/weworks-white-elephant-
in...](https://therealdeal.com/2019/11/01/weworks-white-elephant-insiders-
savage-its-lord-taylor-building-buy/)

------
xenospn
Litigation is expensive, but I doubt it's going to cost SoftBank anywhere near
$3B (unless they lose, which they probably won't).

~~~
toomuchtodo
SoftBank just has to wait for WeWork to exhaust its cash reserves. It's clear
SoftBank will take whatever steps are necessary for the deal to close and them
light another $3B on fire.

From a paywall FT article [1] quoted in Matt Levin's piece ("WeWon't") on
this:

> "Thousands of WeWork tenants have refused to pay rent or sought to terminate
> their leases over the past month, heaping pressure on the lossmaking group
> as its occupancy level and cash pile dwindles"

[1]
[https://www.ft.com/content/78dbfb03-f47d-41f3-9bf6-6696e5ef6...](https://www.ft.com/content/78dbfb03-f47d-41f3-9bf6-6696e5ef626b)

~~~
tonyhb
Ran through some numbers from their S1's and Harvard Business School's
anaylsis. By mid Q3 they'll be out of cash at their current burn with no new
money, given their 2020 obligations.

~~~
koolba
Does that factor in the insane increase in legal spending they’re going to
have this year?

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chrisjc
I understand that the initial funding was provided through the vision fund,
and second round funding through the vision fund was shot down by vision fund
members. As as a result, the second round funding was going to be provided by
Softbank themselves...

Is this news about that second round funding by Softbank?

~~~
hkmurakami
this is the buyout of individual shareholders.

------
jaequery
I understand Softbank is walking away from the deal. Does that mean they
didn't put in any money yet? How much are they losing from this deal?

~~~
mike_d
SoftBank is only walking away from buying out the founders and early employees
that got the company in this mess. They continue to invest and extend credit
to the company itself.

------
seemslegit
Good timing, people have lots of spare attention and the supply chains for
salt, butter and corn can probably be expected to bear it.

------
peeze
Crisis? More like correction.

------
stephc_int13
What a surprising surprise.

------
joejerryronnie
SoftBank should hold out until WeWork crumbles under the weight of their
terrible business model and the current crisis, then purchase their real
estate assets for pennies on the dollar.

~~~
evgen
What real estate assets? Long-term lease agreements at what is certainly above
market rates given the current situation?

~~~
joejerryronnie
You’re right, WeWork probably doesn’t own any of the buildings they operate in

------
thehappypm
WeWork has an existential issue in that the entire workforce will emerge from
this with at least 2 months of remote work experience. Many, many employers
and individuals will realize that remote is OK, and in fact has a ton of
benefits.

~~~
noodle
I dunno, I feel like this could swing either way. I'm a remote worker and I
work out of a coworking space. If more people go remote, demand for coworking
space could also increase.

~~~
freehunter
I'd agree with this take. I think some number of people will realize they
don't like needing to go to the office every day but also can't feasibly work
from inside their own house (kids, dogs, spotty wifi, loud neighbors, etc).

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H8crilA
I really hope WeWork wins this one. The world of "investing" needs to chill a
little and see a few outrageously exuberant bulls absolutely destroyed before
we go from a big bubble to a massive bubble, and then to a massive crash.

But then again Masa was already possibly the worst investor in the history of
humanity, even before the Vision Fund, so who will take note this time? If he
lives through the next 20 years he'll probably run yet another, equally
idiotic fund.

~~~
jacquesm
They were funded based on the bubble, I don't see why the bubble collapsing
wouldn't see them crash.

~~~
H8crilA
I just mean I'm cheering for this lawsuit. Every money taken away from stupid
"VC" is a win for the future peace of the economy. And obviously it has a very
magnified effect - most exuberant people only want to buy at some kind of "all
time high". I.e. taking away $1 from Masa will reduce the "dumb money pool" by
many times that dollar.

~~~
jacquesm
That would work if it ended in pockets where it can do some good. Having it
end up with WeWork is the same as tossing it into an outdoor furnace.

