WeWork co-founder and former Chief Executive Adam Neumann is in advanced talks to settle a high-profile legal fight with SoftBank Group Corp. by agreeing to a nearly $500 million cut in his payout from the shared-office-space company’s new owner, a move that would help clear the way for WeWork’s second attempt at a public listing.
According to terms being discussed, SoftBank would spend roughly $1.5 billion to buy the shares of early WeWork investors and employees, including nearly $500 million to purchase shares from Mr. Neumann — in both cases about half what it originally agreed to, according to people familiar with the talks.
SoftBank took a majority stake in WeWork after its attempted IPO collapsed in 2019 when public investors balked at buying the money-losing company’s shares and at Mr. Neumann’s conflicts of interest and erratic behavior. Mr. Neumann stepped down under pressure as CEO in the wake of the IPO debacle.
The negotiations have been rocky at times and there is no guarantee they will produce an agreement, but if there is one, it could be finalized in the coming days, the people said.
Should there be a settlement, it could be followed by another deal as WeWork is also in talks to combine with a special-purpose acquisition company (SPAC), a move that would finally convert it into a public company.
WeWork has been in talks with a SPAC called BowX Acquisition Corp. and the two sides could reach a deal in the coming weeks, the people said. There is no guarantee WeWork will reach a deal with BowX, and other financing and SPAC options are still on the table, the people cautioned.
The Wall Street Journal had previously reported that WeWork was in talks with BowX, which come amid a wave of SPAC deals and a booming IPO market. A deal could value WeWork at about $10 billion, people familiar with the matter have said.
The agreement with Mr. Neumann would put an end to a fight that has its roots in the October 2019 bailout of WeWork by SoftBank, soon after the IPO fell apart. The Japanese investing giant agreed to buy $3 billion of shares from Mr. Neumann and others as part of a deal that also pumped money into the company when it was weeks from running out of cash. The agreement included a four-year, $185 million consulting fee for Mr. Neumann, an enormous golden parachute that was criticized at the time.
Last April, as a deadline approached for SoftBank to complete the share purchase, the firm reneged, saying certain conditions of the payment hadn’t been met, including the restructuring of a China subsidiary. Mr. Neumann and other early WeWork investors sued, starting a legal skirmish that was set to go to trial in early March. SoftBank discontinued payments on Mr. Neumann’s consulting fee amid the legal fight.
WeWork has been a black eye for SoftBank, as most of the $10 billion it invested vanished, at least on paper. Besides cutting its bill to bail out WeWork, resolving the dispute would help pave the way for a listing that could inject new cash into the company. For Mr. Neumann and the other investors, it would enable them to avoid the risk of getting nothing if SoftBank prevailed at trial.
SoftBank’s decision to withhold the $3 billion payment came as the coronavirus pandemic decreased the need for office space and put a major dent in WeWork’s business. The company’s value shrunk to $2.9 billion, SoftBank told investors in an earnings presentation in May, from $47 billion at its peak. WeWork, which rents office space on long-term leases and then subleases it on shorter terms after completing hip renovations, cut thousands of jobs and withdrew from dozens of buildings around the world.
The company is still awash in red ink, though far less than before.
Under current Chief Executive Sandeep Mathrani, who joined in early 2020, WeWork has cut its cash burn from a high of $1.4 billion in the fourth quarter of 2019 to $517 million in the third quarter of 2020.
Now, its executives are betting that WeWork’s flexible offering, which allows companies to rent monthly or yearly instead of signing, say, 10 year leases, will be a hit among those that want to rethink their office space post-pandemic. Mr. Mathrani said recently he believes the company will turn a profit in the fourth quarter of 2021.