Taming the Unicorn: WeWork’s Adam Neumann and SoftBank Reach a Settlement​

By Alison Catchpole​

The Story

“Our mission is to elevate the world’s consciousness,” stated the 2019 IPO prospectus – not for a drug or a yoga app, but a place to call ‘the office’. WeWork offered millennials a physical social network to offset their screen time. Meditation rooms and beer on tap gave the flexible co-working spaces utopian appeal, from US$45 a month in 800 locations.

Visionary but controversial, Adam Neumann came to New York after a spell in the Israeli Navy, cofounding WeWork with architect Miguel McElvey in 2010. Growth was exponential.

SoftBank invested in 2017 and by summer 2019, WeWork was valued at US$47 million. In August 2019 WeWork announced a planned IPO – but even the prospectus was “ridiculed for its incoherence” (NYTimes). Soaring costs were obfuscated and, characteristically, Neumann had purchased the trademark to the name ‘We’, selling it back to his own company for US$5.9 million (Bloomberg/YouTube). In the first nine months of 2019, WeWork lost US$2.2billion and was two weeks away from running out of money (Financial Times). On 17 September 2019 the IPO was officially pulled. On 24 September, Neumann stepped down as CEO. SoftBank Group Corp swooped in October 2019, agreeing to purchase US$3 billion in stock from investors and employees, including US$970 million worth of shares from Neumann. Then in April 2020, with the pandemic in full swing, SoftBank walked away from the deal, citing WeWork’s failure to meet conditions including “a planned roll-up of its China business and ongoing regulatory investigations” (Forbes). In May, Neumann and WeWork investors sued for breach of contract.

SoftBank announced on 27 February 2021 that they had reached a settlement agreement (YahooNews). The WSJ reported that the deal would give Neumann US$50 million in legal fees, a US$50 million payout and approximately US$500 million from early WeWork investor shares, plus a five-year extension to a US$430 million loan from SoftBank. Neumann would leave the board for at least a year.

What It Means For Businesses And Law Firms

Glossy buildings were the answer for start-ups seeking short-term leases and a cultural sandbox, but businesses are pivoting to keep up with the ‘new normal’. In late 2020, law firm McDermott Will & Emery vacated a London WeWork space that housed its support staff. Mishcon de Reya last week committed to an entirely flexible working pattern, and John Lewis is amongst retailers looking to convert expensive prime location space into offices.

Ending drawn-out litigation could clear the way to a special purpose acquisition company (SPAC) purchase of WeWork, thus listing publicly without the need to re-tread its failed IPO route. According to the Financial Times, “BowX Acquisition, a blank cheque vehicle that raised $420m in an IPO in August […] approached SoftBank, WeWork’s largest shareholder, about a deal that could value WeWork at about $10bn.” The SPAC boom has been transforming capital markets, but talks could fail.

Extended legal wrangling creates a lot of work for law firms. A large number of law firms have been involved in advising all sides, from Morris Nichols Arsht & Tunnell LLP for Adam Neumann and We Holdings, to Skadden, Arps, Slate, Meagher & Flom LLP for SoftBank Group Corp.

“We identify the entrepreneurs who have the greatest vision to solve the unsolvable…And then we provide the cash to fight,” said SoftBank’s Masayoshi Son in October 2019 (Financial Times). He may not have anticipated quite the fight he was entering.

Image Credit: Bandersnatch / Shutterstock.com
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