The shared workplace area firm’s co-founder and former chief govt left WeWork 4 years in the past as a billionaire due to giant inventory gross sales and a profitable exit package deal.
Now, with WeWork in chapter and his remaining shares close to nugatory, there’s a potential for additional monetary acquire for Neumann value a whole bunch of hundreds of thousands of {dollars}.
In late 2019, SoftBank dedicated billions of {dollars} to bail out WeWork after the workplace firm’s failed try at an preliminary public providing left it low on money and heavy on losses. Neumann was ousted by the corporate’s board, however earlier than he surrendered management of the corporate he based, Neumann negotiated important concessions and funds from SoftBank.
One concession was a roughly $430 million mortgage from SoftBank to Neumann that had a key function: Neumann wasn’t personally on the hook for paying it again. As an alternative, if he stopped paying, SoftBank would have the ability to seize his shares in WeWork as collateral.
The worth of that collateral has plummeted. With WeWork’s inventory worth close to zero, Neumann’s WeWork shares are presently value $4 million, down from round $500 million in fall 2021, in line with FactSet. SoftBank executives fear that Neumann might elect to easily stroll away with the cash he was lent and hand over the shares, individuals accustomed to the state of affairs mentioned.
SoftBank doesn’t explicitly disclose the scale of the mortgage, however an individual accustomed to the main points mentioned Neumann nonetheless owes a whole bunch of hundreds of thousands {dollars} after he paid a few of it again in 2022.
Neumann, who as soon as was value roughly $10 billion on paper at WeWork’s peak, issued a short assertion in regards to the chapter, saying it “has been difficult for me to look at from the sidelines.”
That Neumann might depart with a final slug of cash is a knock-on impact of the beneficiant phrases large traders lavished on tech firm founders throughout the now-ended startup frenzy.
He’s not the one one who will emerge from the wreckage with money in hand. One other winner from WeWork’s chapter is part-time SoftBank govt Rajeev Misra.
In February, an funding fund that Misra manages, separate from SoftBank, lent $470 million to WeWork. As a part of the deal, SoftBank agreed to pay again the debt—a letter of credit score—if WeWork ever failed, securities filings present. It was the most recent try by SoftBank to salvage the billions of {dollars} it put into WeWork over time.
SoftBank offered comparable ensures to different chunks of WeWork debt.
A provision within the borrowing paperwork proved profitable for Misra’s Center East investor-backed fund, One Funding Administration, which has round $7 billion underneath administration. The fund was assured 18 months of curiosity funds by SoftBank, even when WeWork failed, securities filings present.
SoftBank repaid the debt late final month, about midway by means of the 18-month time period, chapter paperwork present. That handed Misra’s fund a revenue of about $105 million, primarily based on the roughly 15% rate of interest, in line with filings and an individual accustomed to the matter. Early repayments will be significantly useful for fund managers on condition that the cash will be put to different makes use of before anticipated—making extra revenue nonetheless.
The letter of credit score successfully put Misra on either side of the identical deal. He nonetheless works for SoftBank overseeing its $100 billion Imaginative and prescient Fund, which invested in WeWork in 2017.
Much more traders, companies and workers stand to be harm by the chapter than to realize. WeWork has mentioned it will search to cancel between 50 and 100 leases, leaving dozens of landlords with no hire. A lot of WeWork’s tenants will seemingly must scramble to search out new workplace area. WeWork inventory is value a fraction of what it was value in 2021, when the corporate went public by means of a merger with a blank-check firm.
However by far the most important loser in WeWork is SoftBank.
The corporate put greater than $10 billion into WeWork underneath Neumann, solely to double down when he was ousted in 2019. It assured as much as $5 billion in new debt and purchased extra shares within the then-private firm.
The chapter threatens to wipe out most of that debt and the entire the rest of its funding.
The corporate has now misplaced greater than $14 billion on the roughly $16 billion it put into WeWork by means of loans and funding, SoftBank mentioned in its quarterly earnings Thursday. The Japanese conglomerate misplaced greater than $6 billion within the three months by means of September due to the decline in its WeWork holdings and different startup investments.
SoftBank’s embrace of WeWork stands out as one of many all-time worst investments in a startup and an infinite sum of money to spend on an organization within the enterprise of leasing desks and workplaces.
By comparability, competitor IWG has comparable income to WeWork and has a market capitalization of about $1.7 billion.
The tally of SoftBank’s losses doesn’t embrace the debt to Neumann or different funds made to him.
Neumann now runs a brand new real-estate startup backed by $350 million from tech investor Andreessen Horowitz. The apartment-rental firm consists of some buildings Neumann bought with cash he made by means of WeWork.
When WeWork was personal, an entity managed and principally owned by Neumann bought greater than $1 billion in inventory—principally to SoftBank—in quite a few gross sales over a decade. SoftBank additionally agreed to offer him about $200 million in different direct funds associated to his exit.
WeWork in 2019 additionally agreed to cowl quite a few bills value $1.75 million that Neumann owed the corporate, firm paperwork reviewed by The Wall Avenue Journal present. The funds included reimbursements for Neumann’s private private-jet journey.
Write to Eliot Brown at Eliot.Brown@wsj.com
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