Can SoftBank turn WeWork profitable?
We're back into the SoftBank WeWork conversation this week. While the fiasco in the past 2 months has upturned the industry outlook, with pressure on profitability rising, this week's events has many questioning why SoftBank is not simply letting go of WeWork yet.
In a bid to turn the loss-making WeWork around, SoftBank has negotiated a $11.2 billion deal. As part of this, CNBC reported that the Japanese conglomerate will inject $5 billion in new financing, as well as $3 billion to buy shares from existing investors at a more “value-corrected” rate. Moreover, it will be speeding up the previously committed $1.5 billion in finances
In addition to this $9.5 billion for WeWork, SoftBank has also negotiated a $1.7 billion deal with founder and former-CEO Adam Neumann. As part of this deal, The Wall Street Journal reported that Neumann will receive $970 million for his shares, $185 million in consulting fees as well as $500 million in credit to support his loan repayments to J.P. Morgan Chase, UBS and Credit Suisse.
As part of this humongous deal, SoftBank’s share in the company will go from 30% to 80%. Logic reasons that this move signals SoftBank’s faith in the company’s core offering; however, industry experts are not convinced.
“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.”SoftBank Chairman and CEO Masayoshi Son said in a statement
In the past few weeks, especially after the recent announcement of the $11.2 billion deals, SoftBank’s share price has continued to fall, declining by almost 3 per cent.
While WeWork’s valuation has been so far corrected to between $7.5 and $8 billion — a fraction of the $47 billion reported in the financing round at the beginning of this year.
So what next?
SoftBank has already assigned Marcelo Claure as the new chairman to lead the firm, who plans to move the company “toward more transparency, a soon-to-be leaner staff, and better accountability,” Business Insider reported.
In an all-staff meeting on Wednesday, Claure said, "We want this to be a growth story. We want this to be an amazing comeback story. The money worries should be gone by now, right? We have everything that we need financially to go fund this."
But at what cost? A leaner staff is one of the first strategies to cut down costs. And WeWork plans to cut almost 30 per cent of its workforce across the world, as per reports from the Financial Times. Cleaners and support staff will make up almost 1,000 workers, whose jobs will be outsourced to agencies. Further details are yet to be announced.
Reports revealed that Artie Minson and Sebastian Gunningham, the Co-CEOs hired to fill the position when Adam Neumann stepped down, have already cut some of WeWork’s acquisitions and other ventures.
With strong leadership and strict measures moving forward, SoftBank is keen to instate its reputation for finding startup gems, something that has been tarnished and doubted in the past few months. Whether it is able to do so keeping the core proposition of WeWork remains a question we will be looking to answer.