WeWork co-founder pushed aside in reported SoftBank takeover

WeWork is reportedly accepting a financial rescue package that hands control of the company to its top investor and pushes aside co-founder Adam Neumann and his grandiose vision of changing the world through communal working.

Japanese tech conglomerate SoftBank would take a controlling stake in the company under the deal to infuse WeWork with more than $5 billion in urgently needed capital, the Wall Street Journal reported Tuesday, citing unnamed sources. Neumann would walk away with nearly $2 billion to sever most of his ties to the company.

WeWork has been scrambling for cash since its attempt to enter the stock market floundered last month, a stunning fall from grace for a company that has until recently been considered one of the most highly valued start-ups in the U.S.

In this Oct. 6, 2019, photo people walk by WeWork offices in Dublin, Ireland. The Wall Street Journal is reporting on Tuesday, Oct. 22, that WeWork is being taken over by the Japanese investment bank that invested billions in the company before its botched effort to go public. (AP PhotoMark Lennihan)

The deal throws WeWork a lifeline as it attempts to turn around a money-losing business model that had repelled potential Wall Street investors. But it comes at a steep cost for SoftBank, which already owns one-third of WeWork and has sunk $10 billion into the company.

SoftBank's takeover would value WeWork at $8 billion, a fraction of the $47 billion valuation SoftBank had assigned the company in its last round of financing in January, the Journal reported. A person familiar with the deal, who spoke on condition of anonymity because there was no official announcement, confirmed the accuracy of the report.

The contours of the deal mean SoftBank now has more money invested in WeWork than the company is worth.

"This is where the math gets confusing because they've put in more money than the valuation of the company," said Larry Perkins, founder and CEO of SierraConstellation Partners, a management advisory firm that specializes in helping companies navigate difficult turnarounds. "That would be the question going forward: Is this good money after bad money or a preservation of their investment?"

SoftBank will pay Neumann $1 billion for his shares in the company and extend him $500 million in credit to help him repay a loan from J.P. Morgan., the Journal reported. SoftBank also will pay Neumann a $185 million consulting fee.

Neumann stepped down as CEO under pressure last month, but he retained a controlling share of the company, making his approval necessary for any deal. He will step down from WeWork's board of directors but retain a small stake in the company.

"He gets a golden helicopter that lets him get out of this, and that is just remarkable," Perkins said.

The SoftBank deal eases WeWork's immediate cash crunch, but the company faces a long road ahead to address its deeper challenges, namely finding ways to curtail its staggering spending.

WeWork mostly makes money by leasing buildings and subdividing them into office space that it sublets on a short-term, flexible basis.

Since the failed IPO, WeWork has taken steps to shore up that core business and move away from the meandering direction it had taken under Neumann.

Neuman, who grew up partly in a kibbutz, had dazzled private investors with his vision of creating workspaces that foster communality and cater to the overall well-being of its members. The company launched side businesses including a fitness company called "Rise by We" and the co-living rental company "WeLive."

Those projects now appear on the chopping block. Last week, WeWork announced it would close WeGrow, its newly launched Manhattan elementary school. Days later, the company scrapped a deal with a top Seattle real estate firm for a building that would combine its WeWork offices spaces with its WeLive communal apartment rentals.

WeWork, which has locations in 111 cities around the world, is also slowing its expansion plans. Last week, the company canceled plans to lease space in U.S. Steel Tower, Pittsburgh's tallest building.

But the company could face an uphill battle to curb costs related its future lease obligations, which amounted to $47.2 billion as of June 30. Most of its leases don't have provisions to let the company out of them early, and the average initial term of its U.S. leases is 15 years.

"It's a huge liability. There's a very blunt option called bankruptcy that I'm sure everyone wants to avoid. It would be a last resort, but I'm sure it's an option that is on the table if they can't get out of leases peacefully," Perkins said.

WeWork had faced few palatable options since pulling out of the IPO, which the company had been counting on to raise $9 billion in stock and related debt financing.

The company decided to accept SoftBank's over a high-risk debt-financing proposal from J.P. Morgan Chase & Co., which had been the lead underwriter of the failed IPO.

WeWork was sitting on $2.5 billion in cash and cash equivalents at the end of June, but it burned through nearly $199 million in the first six months of the year just operating its business.

On top of that, WeWork spent $2.36 billion on new leases and other investments, an amount that had been offset by $3.43 billion raised though venture capital and high-yield debt. The person familiar with the negotiations said WeWork had been on track to run out of cash by the end of November without the new financing.

AP Business Writer Stan Choe in New York contributed to this report.

KYIV, Ukraine (AP) — A Ukrainian court on Friday ordered the detention of the country’s farm minister in the latest high-profile corruption investigation, while Kyiv security officials assessed how they can recover lost battlefield momentum in the war against Russia.

Ukraine’s High Anti-Corruption Court ruled that Agriculture Minister Oleksandr Solskyi should be held in custody for 60 days, but he was released after paying bail of 75 million hryvnias ($1.77 million), a statement said.

Ukraine’s National Anti-Corruption Bureau suspects Solskyi headed an organized crime group that between 2017 and 2021 unlawfully obtained land worth 291 million hryvnias ($6.85 million) and attempted to obtain other land worth 190 million hryvnias ($4.47 million).

Ukraine is trying to root out corruption that has long dogged the country. A dragnet over the past two years has seen Ukraine’s defense minister, top prosecutor, intelligence chief and other senior officials lose their jobs.

That has caused embarrassment and unease as Ukraine receives tens of billions of dollars in foreign aid to help fight Russia’s army, and the European Union and NATO have demanded widespread anti-graft measures before Kyiv can realize its ambition of joining the blocs.

In Ukraine's capital, doctors and ambulance crews evacuated patients from a children’s hospital on Friday after a video circulated online saying Russia planned to attack it.

Parents hefting bags of clothes, toys and food carried toddlers and led young children from the Kyiv City Children’s Hospital No. 1 on the outskirts of the city. Medics helped them into a fleet of waiting ambulances to be transported to other facilities.

In the video, a security official from Russian ally Belarus alleged that military personnel were based in the hospital. Kyiv city authorities said that the claim was “a lie and provocation.”

Kyiv Mayor Vitali Klitschko said that civic authorities were awaiting an assessment from security services before deciding when it was safe to reopen the hospital.

“We cannot risk the lives of our children,” he said.

Meanwhile, Ukrainian President Volodymyr Zelenskyy was due to hold online talks Friday with the Ukraine Defense Contact Group, which has been the key international organization coordinating the delivery of weapons and other aid to Ukraine.

Zelenskyy said late Thursday that the meeting would discuss how to turn around Ukraine’s fortunes on the battlefield. The Kremlin’s forces have gained an edge over Kyiv’s army in recent months as Ukraine grappled with a shortage of ammunition and troops.

Russia, despite sustaining high losses, has been taking control of small settlements as part of its effort to drive deeper into eastern Ukraine after capturing the city of Avdiivka in February, the U.K. defense ministry said Friday.

It’s been slow going for the Kremlin’s troops in eastern Ukraine and is likely to stay that way, according to the Institute for the Study of War. However, the key hilltop town of Chasiv Yar is vulnerable to the Russian onslaught, which is using glide bombs — powerful Soviet-era weapons that were originally unguided but have been retrofitted with a navigational targeting system — that obliterate targets.

“Russian forces do pose a credible threat of seizing Chasiv Yar, although they may not be able to do so rapidly,” the Washington-based think tank said late Thursday.

It added that Russian commanders are likely seeking to advance as much as possible before the arrival in the coming weeks and months of new U.S. military aid, which was held up for six months by political differences in Congress.

While that U.S. help wasn’t forthcoming, Ukraine’s European partners didn’t pick up the slack, according to German’s Kiel Institute for the World Economy, which tracks Ukraine support.

“The European aid in recent months is nowhere near enough to fill the gap left by the lack of U.S. assistance, particularly in the area of ammunition and artillery shells,” it said in a report Thursday.

Ukraine is making a broad effort to take back the initiative in the war after more than two years of fighting. It plans to manufacture more of its own weapons in the future, and is clamping down on young people avoiding conscription, though it will take time to process and train any new recruits.

Jill Lawless contributed to this report.

Follow AP’s coverage of the war in Ukraine at https://apnews.com/hub/russia-ukraine

Ukrainian young acting student Gleb Batonskiy plays piano in a public park in Kyiv, Ukraine, Thursday, April 25, 2024. (AP Photo/Francisco Seco)