[Asia Economy Reporter Kwon Jae-hee] Office-sharing company WeWork has filed a lawsuit against Japan's SoftBank Group. The reason is that WeWork employees suffered serious financial losses after SoftBank withdrew its plan to publicly buy back WeWork shares promised to investors. SoftBank countered that WeWork failed to fulfill the contract terms agreed upon last year. A fierce legal battle between the two companies is expected to continue.
According to CNBC on the 7th (local time), WeWork's board special committee filed a lawsuit in Delaware court against SoftBank and its Vision Fund, alleging that they deliberately failed to fulfill a partial public stock buyback contract worth $3 billion (approximately 3.7 trillion KRW).
Earlier, after the initial public offering (IPO) was canceled in September last year and WeWork fell into financial difficulties, SoftBank decided in October of the same year to proceed with a public stock buyback. The shares SoftBank initially agreed to purchase were worth $3 billion, which included $970 million worth of shares held by Adam Neumann, WeWork's co-founder and former CEO who stepped down after the IPO failure. This fund was intended to flow to current and former employee shareholders, external equity holders, and former CEO Neumann.
However, in mid-last month, SoftBank sent a letter to existing investors stating that it might withdraw the public stock buyback if investment conditions for WeWork were not met. This withdrawal of the public buyback is in line with SoftBank's previous stance.
As the withdrawal plan became known and WeWork filed a lawsuit, SoftBank responded with a statement claiming it fulfilled its obligations to WeWork. SoftBank argued that WeWork's special committee is making a misguided attempt to rewrite the agreement made last year. Furthermore, SoftBank rebutted the background of the investment withdrawal by stating, "Some of the conditions agreed upon in October last year by the special committee, WeWork, Adam Neumann, SoftBank, and SoftBank Vision Fund have not yet been fulfilled."
With SoftBank's investment withdrawal, WeWork is expected to face even greater difficulties in business operations. Before the IPO was canceled last year, WeWork's corporate value reached as high as $47 billion, but due to continuous deficits and successive setbacks such as the New York State Attorney General's investigation, its current corporate value is reported to be less than $10 billion. In particular, the spread of COVID-19 has negatively impacted short-term office leasing.
SoftBank is also in a crisis. This investment withdrawal is interpreted as an effort to increase cash reserves amid repeated investment failures and the economic crisis caused by COVID-19. On the 25th of last month, credit rating agency Moody's downgraded SoftBank's credit rating two notches from Ba1 to Ba3 and changed the rating outlook from 'stable' to 'negative.' Moody's stated, "If the credit ratings of invested companies such as WeWork deteriorate significantly or debt increases, we may further downgrade the credit rating."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
