SoftBank Group Corp. has opted to back away from part of its bailout of co-working space provider WeWork, according to people with matter, The Wall Street Journal reports. The company privately cited numerous regulatory investigations into WeWork as its reasoning for backing away from the planned bailout. SoftBank made a deal last year to buy $3 billion of WeWork shares from current investors.
Former WeWork Chief Executive Adam Neumann was one of those investors—the co-working company founder had the right to sell up to $970 million in stock after he stepped down from the board. SoftBank’s potential change of heart will not impact its plan to provide WeWork with $5 billion directly however. WeWork was in desperate need of that payment as it was quickly running out of cash. Some of those funds, including $1.5 billion in fresh equity have been invested already, according to The Wall Street Journal.
It’s important to note that SoftBank has not officially canceled the bailout—the heads up to WeWork could be a negotiating ploy. It could also be a way to delay the investment given the current volatile markets—U.S. stocks continue to plunge and rise amid the Coronavirus outbreak.
If SoftBank proceeds with the bailout, it has told shareholders in the past that it plans to buy WeWork’s existing shares on April 1. Unfortunately, numerous factors including dropping share prices, the expensive WeWork bailout and a $4.8 billion share buyback plan have forced credit rating firm S&P Global Inc. to cut the company’s credit outlook to “negative.” S&P stated SoftBank’s announcing a share buyback plan in the middle of a stock market plunge raised questions of the company’s commitment to being financially sound.
Softbank’s negative credit outlook combined with the SEC, Justice Department and New York state regulators asking SoftBank about WeWork’s business practices and investor communications have been more than enough reason for the company to rethink parts of the bailout.