TOKYO: Japan-based SoftBank Group confirmed on Wednesday it will pump billions of dollars into struggling startup WeWork in a deal that ups its stake in the office-sharing firm to around 80 per cent.

The package, which involves new financing, speeding up already pledged money and a new tender offer for existing shareholders, is worth a total of $9.5bn.

It will see co-founder Adam Neumann, who has already been forced to step down as chief executive, exit the board for an “observer” role.

SoftBank Group’s Marcelo Claure will take over as executive chairman of the board.

The agreement caps a turbulent period for the once-vaunted startup, which was valued by some at around $47bn at the start of the year, and represents a significant shot in the arm as the company haemorrhages money.

“SoftBank has decided to double down on the company by providing a significant capital infusion and operational support,” SoftBank Chairman Masayoshi Son said in a statement.

“The new capital SoftBank is providing will restore momentum to the company and I am committed to delivering profitability and positive free cash flow,” added Claure in the statement.

The package includes $5bn in new financing, as well as a commitment to speed up an existing pledge of $1.5bn.

SoftBank will also launch a tender offer of up to $3bn for existing shareholders, at $19.19 a share, expected to start in the fourth quarter of 2019.

SoftBank, which already held 29pc of WeWork, will increase its stake to “approximately 80pc”, but said this did not constitute taking control.

It said it would not hold a majority of voting rights at any general stockholder meeting or board of directors meeting and “does not control the company”.

“WeWork will not be a subsidiary of SoftBank. WeWork will be an associate of SoftBank,” the statement said.

The plan provides much-needed funds for the troubled company, which sources have said must raise at least $3bn to cover its financing needs through the end of the year.

A source told AFP the deal will give Neumann $1 billion for his SoftBank shares, $500 million for reimbursements of personal debts and $185 million in consulting fees.

He will also maintain a small stake in the company, the source added.

The deal follows months of tumult for WeWork, which has gone from star status as one of the world most highly rated start-ups to a case study in overvaluation for some analysts.

Published in Dawn, October 24th, 2019