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Photo courtesy of WeWork
Japanese technology giant SoftBank has committed billions of dollars to bailing out office-space sharing startup WeWork in a daring vote of confidence from its intrepid founder Masayoshi Son.
WeWork’s woes are substantial enough that some analysts say they could derail the investment ambitions of SoftBank’s mammoth Vision Fund.
But, as one of the most innovative companies in conservative Japan Inc., SoftBank is no stranger to risk-taking. SoftBank oversees an expanding conglomerate of businesses spanning telecommunications, energy and humanoid robots.
WeWork is the dominant coworking player in Boston, comprising 3.2 percent of tenancy across the 72 million-square-foot office market, and it maintained its aggressive growth strategy during the third quarter. It inked an 87,000-square-foot lease at Manulife’s 200 Berkeley St. in Back Bay, another 106,000 square feet at 75 Arlington St. and 117,000 square feet at 100 Summer St, a tower which was acquired last week by Rockpoint Group for $806 million.
Local real estate researchers predict a WeWork departure coupled with a broader economic downturn could have a dramatic, negative effect on the downtown office market, as Banker & Tradesman reported earlier this month.
Softbank will dish out $5 billion in new financing for WeWork and launch a tender offer of up to $3 billion for existing WeWork shareholders. Softbank also is accelerating its earlier promise of $1.5 billion in funding for WeWork.
SoftBank says it has ample cash for the deal. It will own about 80 percent of WeWork, and it’s sending SoftBank Chief Operating Office Marcelo Claure, a venture veteran, to be executive chairman of WeWork’s board.
Adam Neumann, the co-founder, will become an “observer” in an expanded board that will have voting control over Neumann’s shares.
Earlier this month, plans for an initial-public-offering of WeWork were suspended amid doubts over its management and profitability.
Son, SoftBank Group’s chairman and chief executive, has dismissed analysts’ criticism that he is backing what some fear is only a volatile real estate company, not an innovative tech startup.
“SoftBank is a firm believer that the world is undergoing a massive transformation in the way people work. WeWork is at the forefront of this revolution,” Son said in announcing the rescue package.
He said new companies always face challenges, but that doesn’t mean their vision is wrong.
“Despite years of successful deal-making, this deal, more than any other, will shape Masayoshi Son’s legacy as an investor,” said Chris Lane, analyst at Sanford C. Bernstein.
“The IPO debacle around WeWork was a very public setback for his Vision Fund and has given ammunition to all his doubters to scream, ‘told you so.’ The tone of much of the media coverage is that SoftBank is throwing good money after bad,” he said in a report.
But Lane rated SoftBank as an “outperform,” noting the deal ensures WeWork is an affiliate, not a subsidiary of SoftBank. He feels SoftBank is getting a sizable chunk of a company with a potential value of nearly $36 billion in five years.
“We continue to believe that WeWork is fundamentally an attractive business with good long-term growth prospects,” he said.
