Japanese tech and telecom heavyweight SoftBank is pouring more capital into US-based co-working space giant WeWork to fuel its global expansion.
However, it has withdrawn a plan to invest US$16 billion to buy most of WeWork, and is currently in “detailed negotiations” to reduce the amount to just US$2 billion, citing the “need for more caution”, according to reports from Wall Street Journal and TechCrunch.
The latest investment plan could be announced this week, though it has not been finalized, TechCrunch said, citing unnamed sources.
SoftBank, led by the billionaire Masayoshi Son, has already committed more than US$8 billion to WeWork via multiple investments in recent years, including US$1 billion in the form of a convertible note in August, followed by US$1 billion in November in the form of equity warrants.
According to the Financial Times, SoftBank initially planned to pay US$10 billion, along with the Japanese company’s giant tech-investment fund Vision Fund, to buy out all outside investors in WeWork and to inject US$6 billion in the startup in the next three years.
Wall Street Journal in October pegged the amount being discussed at the US$20 billion level. However, SoftBank was reportedly less enthusiastic about another huge investment into the fast-growing startup.
The exact reason for the downsized investment is unclear, though the deal faced significant hurdles. SoftBank’s concern over recent market volatility and the reluctance of some of the other WeWork investors to sell their stakes are said to be among the factors.
Also, the size of the initial deal reportedly upset some of Vision Fund’s biggest financial backers in Saudi Arabia and Abu Dhabi, who expressed concerns about the deal.
The New York Times, citing sources familiar with the deal, said the latest investment is coming from SoftBank itself, not from the US$100 billion Vision Fund, and is partly backed by the Saudi government.
The deal would take WeWork’s post-money valuation to US$47 billion.
The shared workplace company has aggressively expanded to over 335 locations around the globe, and had planned to add 100,000 desks to its workplaces in the fourth quarter of 2018 alone.
As of August 2018, WeWork said its paying members exceeded 250,000, more than double the number a year ago.
It has raised over US$10.6 billion since its founding in 2010, and over US$8 billion of that is from SoftBank and Vision Fund.
Though WeWork has become the leader in the booming co-working industry, Financial Times reported that it posted a loss of US$1.2 billion in the first nine months of 2018, nearly quadruple the amount a year earlier. Sales reached US$1.5 billion.
Vision Fund was a major backer of SoftBank’s early investments in WeWork and holds stakes in other technology companies including ride-hailing giant Uber Technologies.
Largely backed by the Public Investment Fund of Saudi Arabia, the fund has been under fire after the killing of journalist Jamal Khashoggi, a vocal critic of Saudi Crown Prince Mohammed bin Salman.
In December 2018, SoftBank Group took its telecom unit public in Tokyo to raise US$23.5 billion, in Japan’s biggest-ever initial public offering.
However, its shares fell as much as 15 percent on its first day of trading, and are currently trading 5 percent below the IPO price.
This article appeared in the Hong Kong Economic Journal on Jan 9
Translation by Ben Ng with additional reporting
[Chinese version 中文版]
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