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WeWork vs. SoftBank

Founder and CEO Adam Neumann (Credit: JamelToppin/Forbes)

Two WeWork directors filed a lawsuit against SoftBank Group after the Japanese conglomerate backed away from a deal to buy up to $3 billion in WeWork’s shares. The lawsuit was filed in Delaware on Tuesday in the name of WeWork’s parent, We Co., by the special committee of WeWork’s board of directors.

  • Softbank’s pretext: SoftBank agreed to buy shares from Adam Neumann, Benchmark Capital and others as part of a bailout package last year, but notified stockholders in mid-March that some of the deal’s conditions hadn’t been met. In court filings, Softbank cited nearly a half-dozen conditions that WeWork officials hadn’t met as the basis for pulling out of purchase, including its failure to renegotiate some leases in the wake of the economic havoc caused by the Covid-19 pandemic. Of the tender offer, $450 million is currently allocated to current and former employees, Bloomberg reported.
  • WeWork director’s argument according to the suit: “SoftBank’s apparent buyer’s remorse” was spurred by its own declining financial condition. “SoftBank’s enormous and growing debt burden, which is now over $109 billion, led Moody’s to issue a rare two-notch downgrade in SoftBank’s debt rating in March 2020.” The directors also noted the agreement doesn’t contain a so-called “material adverse effect” (MAE) provision or similar termination right that is common in such deals.
  • Bottom line: The WeWork directors want a Delaware chancery judge to order Softbank to carry out the stock purchase and acknowledge it trampled on the rights of some investors in the workplace provider. 
  • More on the court: The Delaware Court of Chancery is a court of equity in the American state of Delaware. The Court sits without a jury. All issues of fact are determined by the presiding Chancellor or Vice Chancellor.
  • Why Delaware is the center of the business universe: More than half of the publicly traded companies on U.S. stock exchanges and 60% of Fortune 500 firms  are incorporated there. 
  • Dig Deeper: They’re all in Delaware not for tax avoidance nor anonymity; rather, so their disputes will be heard by one of the five judges of the state’s Court of Chancery—with no jury—and be decided under Delaware law, which is very friendly to business. Thethe state, after all, has a strong incentive to make it so: It gets 40 percent of its revenues from business incorporation, taxes, and franchise fees, according to the Atlantic. Delaware law requires, and the Court of Chancery enforces, that a company’s directors must always be trying to maximize profits for shareholders, said Lawrence Hamermesh, a professor at Delaware Law School at Widener University. That means doing what’s best for the company’s share price, no matter how it affects employees or the environment.

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