The Japanese media just announced that Softbank Group has provided the We Company (which runs WeWork) with a $5 billion rescue package proposal. The package would be provided by Softbank Group, not the Softbank Vision Fund, and would not involve Softbank taking majority voting rights in We or consolidating We as a subsidiary. I would imagine this might mean the some of the funding would be via loans or preferred share issuances rather than just common equity. It’s also reported that We is in talks with JPMorgan Chase as well, involving an issuance of bonds by We.
My guess here is that Softbank is going to end up “winning” this deal, if being selected to invest in a flawed and perhaps unsustainable business could even be considered “winning”. A deal with JPMorgan is probably going to come with cripplingly high interest rates (I’m guessing 10% or higher given the elevated risk of bankruptcy and the lack of viable options for We). Also, Softbank has a greater vested interest in seeing that We survives, given the many billions ($11 billion cumulatively for a 29% stake) that it has already invested in the company at the common equity level, not to mention that it has partially staked its reputation on We succeeding.
I’m not sure if $5 billion is going to cut it given how fast the cash burn is at We, but I think it’ll come with many stipulations including putting a halt on new expansions, closing down a lot of the existing locations starting with the least profitable ones, cutting headcount dramatically, and slashing other overhead expenses. At the end of the day, We is just a provider of nicely decorated shared offices, offered at a rip off price to customers duped into believing that fancy sofas, good coffee, fast WiFi, and access to a “community” are worth a lot more they are. On a smaller scale, We could probably still work as a business model as long as it chooses its locations carefully. Still, it’s almost certain to end up being but a shadow of its former self, and definitely not worth its peak valuation of $47 billion.
Right now it feels like Softbank is throwing good money after bad — but it’s not like Softbank has a choice, since the alternative is bankruptcy or a loan shark.
