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WeWork shareholders are suing the coworking giant's biggest backer, SoftBank Group, claiming the Tokyo-based firm's plan to kill a $3B share-buying commitment is a breach of contract and its fiduciary duty.
The Special Committee for The We Company Board of Directors filed the lawsuit in Delaware, the group announced Tuesday, requesting the court force SoftBank to make good on its promise.
SoftBank stepped in last year to bail out WeWork after its initial public offering went belly up, injecting the startup with billions in cash and installing SoftBank's chief operating officer, Marcelo Claure, as WeWork chairman, ousting founder and CEO Adam Neumann.
But last week, SoftBank said it would back out of its offer to buy $3B worth of WeWork shares. The Tokyo-based firm blamed criminal and civil investigations of WeWork that began after it agreed to spend more than $8B to rescue WeWork from imminent collapse last October.
The coronavirus pandemic, which has shut down a large chunk of the U.S. economy and caused enormous challenges for coworking firms like WeWork, was also cited as a reason SoftBank wanted out.
WeWork is now fighting back, claiming that SoftBank has succumbed to activist investor pressure rather than meet its contractual obligations.
“SoftBank’s failure to consummate the tender offer is a clear breach of its contractual obligations under the Master Transaction Agreement as well as a breach of SoftBank’s fiduciary obligations to WeWork’s minority stockholders, including hundreds of current and former employees,” the committee said in a release. “The Special Committee regrets the fact that SoftBank continues to put its own interests ahead of those of WeWork’s minority stockholders.”
A representative for SoftBank told the Wall Street Journal that the lawsuit is a “mistaken attempt to force SoftBank to purchase their shares when it is not legally obligated to do so.”
WeWork representatives declined to comment.
Neumann was set to make $970M in the deal by selling his stake, but many of the shareholders who would have benefited were former WeWork employees who were given shares of the company as part of compensation packages amid promises of an IPO at a valuation close to $50B.
WeWork was working to get itself back on solid footing after its IPO unraveled last year. But now with the pandemic, it has reportedly been slashing rent for some tenants who will agree to sign up for long-term deals.
This week, it is dealing with a slew of tenants that aren't paying rent or are trying to pull out of leases, with occupancy across the company's portfolio dropping below 70%, the Financial Times reports.
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