In 2017, WeWork CEO Adam Neumann (left) told Forbes, “Our valuation and size today are much more … [+]
JAMEL TOPPIN FOR FORBES
Adam Neumann just declared war on SoftBank.
The WeWork cofounder and former CEO filed suit against the conglomerate founded by Masayoshi Son, once his most powerful cheerleader, in the Delaware Court of Chancery on Monday night. The move adds Neumann to a legal scrum that began when a special board committee filed a similar lawsuit on behalf of The We Company last month. Neumann’s suit includes a motion to consolidate the two.
The complaint is the first public glimpse of Neumann’s intentions since he was pushed out as CEO in September after the company’s failed public offering. The suit, unthinkable just six months ago, is the latest twist in an unraveling drama that has engulfed the company.
At issue is SoftBank’s April 1 decision to abandon plans to purchase $3 billion worth of WeWork shares from minority investors. The tender offer was part of a bailout package extended to WeWork in October after the failed IPO. Canceling it prevented Neumann from collecting as much as $970 million from the sale of shares to the Japanese investor.
The suit alleges that SoftBank took steps to undermine the deal as early as December 2019 by preventing a roll-up of WeWork’s China business from closing, which was a prerequisite to the tender offer.
“After gaining control of WeWork and the Board, SBG and SBVF reneged on their promise to pay for the benefits they had already received,” the complaint reads, referring to SoftBank Group and SoftBank’s Vision Fund. As a motive, the complaint points to SoftBank’s “deteriorating” financial condition.
SoftBank’s chief legal officer, Rob Townsend, called the claims “meritless” and said, “Under the terms of our agreement, which Adam Neumann signed, SoftBank had no obligation to complete the tender offer in which Mr. Neumann—the biggest beneficiary—sought to sell nearly $1 billion in stock.”
The two companies have had a whirlwind romance. SoftBank invested $3 billion in WeWork in March 2017 after a 12-minute meeting between Son and Neumann, who founded the company in 2010 with Miguel McKelvery. The investor led two more massive funding rounds that valued WeWork at $47 billion and Neumann’s stake at more than $4 billion in January 2019, and funded the company’s unsustainable—and rapid—expansion.
“You and Miguel are not crazy enough,” Son told Neumann at the time of his first investment.
In September, WeWork’s board removed Neumann as CEO. He had overseen the company as it accumulated enormous losses and the failed public offering exposed widespread corporate governance issues. A Wall Street Journal report documenting Neumann’s marijuana use and other questionable acts was the final straw.
In need of capital, WeWork’s board voted to go with SoftBank’s bailout instead of a competing $5 billion debt package from JPMorgan JPM . The SoftBank deal matched JPMorgan’s on corporate debt but was much more favorable to Neumann personally because of the tender offer, a $180 million consulting fee and a $500 million credit line to pay off other debt.
Neumann has not spoken publicly since his ouster and has spent much of the last several months in Israel, where he grew up. Back in New York, a revolving door of executives led by WeWork executive chairman Marcelo Claure, who is also chief operating officer of SoftBank, attempted to stabilize WeWork. The company has laid off more than 2,650 employees, including many last week, while businesses and buildings acquired in flusher times have been sold off.
By mid-March, as the coronavirus outbreak gained devastating momentum and left many WeWork locations empty, Son notified investors that SoftBank had grounds to renegotiate the tender offer, pointing to unmet conditions, including ongoing regulatory investigations into WeWork and failure to consolidate its China business. Minutes after the April 1 deadline, SoftBank informed investors it would not move forward with the tender offer.
On April 7, longtime board members Bruce Dunlevie of Benchmark and Lew Frankfort, the former CEO of Coach, filed a suit in Delaware’s Court of Chancery on behalf of all minority shareholders. They make up a special committee, originally formed to assess the competing bailout offers from SoftBank and JPMorgan.
That suit alleges SoftBank executives took steps to sabotage the buyout as soon as the original agreement was signed. Benchmark, which owns 8% of WeWork, could have made more than $350 million in the tender offer, according to a document reviewed by Forbes. SoftBank has questioned Dunlevie and Frankfort’s motives and right to file a suit, calling it a “misguided attempt now to rewrite that agreement and to rewrite the history of the past six months.”