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WeWork humbled by SoftBank takeover offer

A sign is seen outside offices run by WeWork in Philadelphia, Pennsylvania, U.S. September 30, 2019.  REUTERS/Mark Makela
A sign is seen outside offices run by WeWork in Philadelphia, Pennsylvania, U.S. September 30, 2019. Photo: REUTERS/Mark Makela

The board of troubled office company WeWork have accepted a takeover plan proposed by SoftBank Group, handing control of the office-sharing startup to the Japanese firm, according to Reuters.

Reuters reported on Monday that SoftBank had offered a package worth nearly $10 billion to WeWork and its shareholders under a plan that would keep the company afloat and lead to the exit of its chairman Adam Neumann. Neumann will reportedly receive $1.7bn in cash and stock to leave the board, according to the Wall Street Journal.

The Financial Times and CNBC reported earlier that WeWork’s board were expected to accept the funding package at a board meeting on Tuesday. The deal gives SoftBank as much as 70% control of the company.

WeWork or Softbank did not immediately respond to request for comment.

READ MORE: Top WeWork buildings pay no UK tax despite profits of £10m

The rescue deal represents an embarrassing retreat for both parties.

WeWork tried to list on the stock market last month at a proposed valuation of $47bn but was forced to pull its initial public offering (IPO) after lack of investor interest. The collapse of the IPO has left the company facing a cash crunch.

SoftBank is WeWork’s largest investor and has already invested around $11bn in the company. SoftBank, which currently owns about a third of WeWork, once said WeWork could someday be worth $100bn. Estimates suggest WeWork needs to sell or float for at least $24bn in order to avoid a loss on its investment.

WeWork’s founder Neumann, a controversial figure due to his hard partying style, once held special shares that gave him 20 times the voting power of ordinary investors. It’s now expected he would have a voting stake of just under 10%.

READ MORE: WeWork delays multi-billion-dollar IPO after poor reception

WeWork rents space in office buildings on long leases and then offers flexible, short-term subleases to startups. It business model requires consistent strong cashflow to meet rental payments. Filings last week showed that just three London buildings were committed to over £250m in long-term lease payments.

Founded in 2010 in New York, WeWork has raised billions from investors and has over 500 locations globally. Investors looking at WeWork’s IPO were turned off by the company’s huge losses and some questioned whether it could ever make money. The We Company, WeWork’s parent, lost $900m on revenues of $1.5bn in the first six months of the year.