- WeWork founder Adam Neumann is suing SoftBank for backing out of a planned $3 billion stock purchase.
- He could group his lawsuit with a similar case filed last month by two former board members.
- Neumann’s lawsuit claims that in late December, SoftBank and Marcelo Claure, WeWork’s chairman, amended the agreed-upon order of the stock purchase agreement without Neumann’s permission.
- For more WeWork stories, click here.
Adam Neumann is suing SoftBank, the Japanese investor that pushed the WeWork founder to go big before forcing his resignation in September.
Neumann, represented by three law firms, claims SoftBank breached its contract in walking away from a planned stock purchase last month. The tender offer would have allowed early WeWork employees, investors, and Neumann to sell up to $3 billion of shares in the privately held company, including up to $970 million of Neumann’s shares.
The stock deal was part of a broader rescue package SoftBank arranged for WeWork in October after the office-sharing startup was forced to cancel its initial public offering due to spiraling losses and concerns about Neumann’s management. But SoftBank abruptly backed out of the plan to buy shares from Neumann and the other insiders earlier this year, reportedly saying WeWork wasn’t in compliance because it was under investigation by the Securities and Exchange Commission and the Justice Department, among other governmental bodies.
Two WeWork board members also sued SoftBank last month over the same issue, with a trial set for January 2021. Neumann could group his case with that lawsuit.
SoftBank, which is WeWork’s largest investor, said it would fight both lawsuits.
“SoftBank will vigorously defend itself against these meritless claims,” Rob Townsend, SoftBank’s chief legal officer, said in a statement. “Under the terms of our agreement, which Adam Neumann signed, SoftBank had no obligation to complete the tender offer in which Mr. Neumann – the biggest beneficiary – sought to sell nearly $1 billion in stock.”
Benchmark Capital planned to sell $340 million worth of WeWork shares to SoftBank as part of the tender offer, which would have made it the biggest individual seller in the deal other than Neumann, Business Insider previously reported.
“Control and deceit”
Neumann’s lawsuit highlights a new detail about the stock purchase program, which was part of a larger plan that also included SoftBank buying up to $1.1 billion in WeWork’s debt. The lawsuit claims that SoftBank and its Vision Fund changed the agreement to allow the debt financing to be done “before or after” the tender offer closed, rather than have the debt contingent on the stock purchase.
Marcelo Claure – SoftBank’s chief operating officer and WeWork’s chairman – signed the amended document on December 27, though Neumann said in the suit that he did not agree to the change.
SoftBank “simply removed Plaintiffs’ signature block from the document,” the lawsuit said.
SoftBank then committed to buy the WeWork debt, giving it more financial control over the company in a “clear example” of how the Japanese company used “control and deceit” for its best interests, the lawsuit said.
Like the directors’ lawsuit, Neumann’s filing also underscores how another WeWork transaction is allegedly a breach of its fiduciary duties and the master agreement that included the stock purchase. WeWork had planned to roll up its China joint venture, a transaction that was a condition to closing the tender offer.
Both lawsuits allege that SoftBank founder Masayoshi Son and other executives convinced some minority investors not to waive their rights of first refusal and co-sale rights, which would prevent the rollup and thus the tender offer. SoftBank instead found an alternative financing route for the China JV via a minority investor, which would “give [SoftBank] an excuse for refusing to close the Tender Offer,” per Neumann’s lawsuit.
If Neumann had known that SoftBank was not committed to closing the China JV, he would not have considered changing the overall agreement, his lawsuit said.
Last month, a SoftBank representative noted multiple, unspecified conditions for the tender offering’s closing were not met. Neumann is asking the court to force SoftBank to complete the tender offer or make it pay damages for breaching the agreement in an amount to be determined at trial.
WeWork was once the crown jewel of SoftBank’s $100 billion original Vision Fund, with a valuation of some $47 billion. But public investors frowned on the company’s massive losses, high costs, and questionable executive transactions, forcing WeWork to abandon its IPO effort even after offering to cut its valuation by nearly 75%.
After the failed IPO, WeWork was mere weeks away from running out of money before SoftBank stepped in with its rescue package. That package helped stabilize the company for the short term, but it’s still burning through copious amounts of cash — more than $1 billion in the fourth quarter alone.
The company went through $1.4 billion in the last quarter of 2019, per an investor letter released last week. WeWork ended the year with $4.4 billion in cash and cash commitments.
Now, WeWork going through its second major round of layoffs, as Sandeep Mathrani, who started as CEO in February, navigates WeWork through the pandemic.
You can read Neumann’s full lawsuit below: