We Accept (Not That We Had A Choice)
WeWork Board Approves Takeover Plan From Softbank; Still Working On Funding Details
It’s official, mostly. WeWork’s Board announced yesterday after the market closed that it had received shareholder approval for Softbank’s takeover and, even more important, $1.5 billion in accelerated aid wired in from Softbank to address its severe cash crunch.
There was no mention of the proposed $3.3 billion in new high yield bonds or the $1.75 billion letter of credit facility which the Board had “expected to occur after the completion of the tender offer.”
It’s interesting that Softbank’s tender offer for up to $3 billion in WeWork shares hasn’t been completed as well since terms of Softbank’s takeover were negotiated and likely known for weeks with WeWork’s comparatively few shareholders, which suggests there still may be lingering dissent.
Holdouts can’t change the outcome, however, because Softbank has a sufficiently actionable majority after buying voting control from ex-CEO Adam Neumann who walks away with a tidy $1.7 billion for his part in this fiasco.
But the pressure’s still on, since the bond offerings and LOL credit facility can’t happen until the tender is done, per deal terms, and WeWork will likely blow through the $1.5 billion lifeline in a month or so.
In the meantime, the cash consideration WeWork has received triggered Softbank’s takeover of WeWork’s management and board, if not majority voting control—much to the detriment of WeWork’s bondholders hoping for a change-of-control escape put at 101% of par. As I warned in WeWork Bondholders Brace for Softbank’s Rescue Plan--In Silence, deal terms were specifically engineered so that Softbank will not consolidate WeWork’s ugly financial performance and massive debt & lease obligations.
But the billions of cash support WeWork will need for years? Softbank's definitely on the hook for that.
It’s a facade, sure, as demonstrated by Softbank’s obvious control over WeWork’s board:
Pursuant to the previously announced agreement with WeWork and completion of the accelerated $1.5 billion payment commitment, several governance changes are effective immediately. The Board of WeWork has been reconstituted to include 10 members, initially consisting of:
Five directors designated by either SoftBank or SoftBank Vision Fund, including Ron Fisher, Marcelo Claure, Steven Langman, and two others to be named at a later date;
Two directors designated by existing investors Benchmark Capital and Hony Capital, who are Bruce Dunlevie and John Zhao, respectively;
Two directors not affiliated with WeWork, who are Jeff Sine and Mark Schwartz; and
One director from the Special Committee of the Board, Lew Frankfort.
Other governance changes, which became effective today include:
Marcelo Claure today has been appointed Executive Chairman of the Board.
Adam Neumann has become a Board observer, and the Board has received voting control over his shares.
So there it is. WeWork has passed the reins over to Softbank, and Softbank now presumably controls the flow of public information going forward.
We’re listening.
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