Japanese telecom giant Softbank is ready to walk away from plans to bailout embattled co-working giant WeWork, casting doubt on a deal that had been set to close in two weeks.
According to correspondence reported by The Wall Street Journal, the proposed agreement by the Japanese conglomerate to purchase $3 billion (A$5 billion) of shares back from existing investors is now highly unlikely.
Over recent months, SoftBank’s chief executive Masayoshi Son has been attempting to secure full control of WeWork in an effort to salvage an investment that has already cost the Japanese telecom group and its Saudi Arabia-backed Vision Fund $10.65 billion (A$17.8 billion).
In an email to shareholders, Softbank cited numerous government inquiries into WeWork, including those from U.S. attorneys, the Securities and Exchange Commission, attorneys general in California and New York and the Manhattan district attorney.
Last year, SoftBank investment pushed the price tag on WeWork to $47 billion, however, the group’s enthusiasm was not matched by the broader investing public.
Bankers failed to drum up enough support to complete the high-profile IPO when they tested a valuation as low as $15 billion ($25 billion), with investors raising concerns over corporate loans offered to then chief executive officer Adam Neumann.
Softbank has recorded a 27 per cent drop in share prices this month as the economic shockwaves continue to reverberate globally sparked by the coronavirus pandemic.
The about-turn by Softbank will now put pressure on WeWork's business model which has been known to be expensive and have little path to profitability since at least 2015.
WeWork is currently contemplating new cuts to its workforce in an effort to rein in expenses and position itself towards generating profits, potentially affecting more than 1,000 of the company’s 10,000 employees.
The price of WeWork’s bonds, which had started to recover after it secured new funding tied to its SoftBank rescue package last year, have also fallen steeply due to the wider market turmoil.
The company’s real estate team is now working to renegotiate and terminate some of its leases as it reviews where to cut back on a global property portfolio that spans 140 cities in 37 countries.