has a planned $ 16 billion investment in office space provider WeWork Cos. Painted. Instead, he opted for a smaller business of around $ 2 billion in the midst of market turbulence and opposition investment partners, according to people who are familiar with the matter.
The two companies could announce the smaller deal on Tuesday, estimating WeWork at about $ 36 billion, with half of the money earmarked for the purchase of shares of existing investors. Already a major investor in WeWork, SoftBank has provided over $ 8 billion in part from the Japanese company's giant tech investment fund.
The previous plan to acquire a controlling interest in WeWork would have been one of the largest investments ever made in WeWork. A private technology startup calling on SoftBank to spend $ 1
Executives from both companies were in advanced talks, and by the end of last month they had planned to announce the milestone evening, these people said.
The exact reason for the reduced investment is unclear, although this is the case The deal faced significant hurdles.
The Wall Street Journal reported in December that SoftBank encountered resistance in its $ 100 billion Vision Fund, which bought $ 4.4 billion of WeWork in 2017.
These investors – sovereign wealth funds affiliated with the governments of Saudi Arabia and Abu Dhabi – expressed concern that they should invest so much, especially in the $ 36 billion valuation that was discussed people familiar with the discussions.
The strong support of WeWork was controversial. Several senior executives questioned the high valuation of a company that focused primarily on real estate.
Adam Neumann, Chairman and Founder of WeWork, has marketed it like a tech company, although most of its business is similar to an office leasing company. It rents long-term space, refurbishes it, divides the offices and passes them on to other companies at short notice.
SoftBank investors also reacted poorly to a potential deal. When the Journal first reported on the talks in October, SoftBank shares fell 5.4% the next day. Equities have fallen by about 36% since peaking in late September, possibly due to the overall decline in technology stocks.
The tech router would probably have made it harder for SoftBank to raise debt for the proposed business.
The proposed $ 2 billion investment was reported by the Financial Times on Monday.
Investing in the investment highlights the limits of SoftBank's financial aspirations and its eccentric leader Masayoshi Son. The 61-year-old executive is focusing heavily on the future of technology by typically making investments as they please, and making those decisions often based on instinct as traditional financial analysis.
Mr. Son was a strong supporter of WeWork. The bet, Mr. Son said, is that WeWork will capture a significant amount of global office space in the coming years as companies move into their hip, flexible workspaces. He said that in an investor call this summer, he is considering moving all of SoftBank's offices to the WeWork locations.
With the larger deal planned, Mr. Son had hoped the sovereign wealth fund would pay for the Vision Fund for part of the deal. a person who is familiar with the matter has said. SoftBank considered other ways to fund the deal, including using its own cash, borrowing, or hiring external investors.
This larger deal provided that all existing investors should be purchased at a cost of around $ 22 billion or less, more than half of the $ 45 billion valuation that SoftBank had set in a November investment , WeWork intended to postpone an IPO indefinitely. The lower investment means that WeWork will have to find cash in the coming years if it wants to continue growing at its current rate.
WeWork has doubled its sales in recent years every year. However, the costly renovations associated with the expansion have resulted in heavy losses. The New York-based company spent twice as much as it did in the first nine months of 2018, generating sales of $ 1.2 billion and a net loss of approximately $ 1.2 billion. Sales doubled in the same period in 2017, while losses almost quadrupled.
WeWork said the rising losses reflect the high growth investments and the individual locations are profitable once they are let.
Write to Eliot Brown at email@example.com