In a jarring turn of events that have turned out to be extremely fortunate for co-founder Adam Neumann, SoftBank Group Corp. (OTCMKTS: SFTBY) is set to take control of WeWork, or the We Company.
The deal would involve endowing Neumann with around a $1.7 billion walkaway just to cut ties with the company and let it be run independently.
Analysts and investors across the globe are shocked at how sizable Neumann's windfall cut is, especially given he was initially forced out as chief executive after pushback from prospective investors.
Neumann has the right to sell $970 million of shares, which is approximately one-third of his stake in WeWork.
"It's stone-cold crazy," said Eric Schiffer, CEO of the Patriarch Organization, a technology and media private-equity firm. "I think SoftBank blinked, and Neumann walks away with one of the biggest hauls in modern history when he should have gotten very little. I think anything over a dollar was more than they needed to pay," Schiffer continued. "What it proves is Neumann's mastery at sophisticated negotiation, when in reality he had very little cards. What occurred was shameful, for him to have gotten anything."
Softbank will additionally extend Mr. Neumann credit to help him repay a $500 million loan facility spearheaded by JPMorgan (NYSE: JPM). It will also pay him a $185 million consulting fee.
What is perhaps more concerning is the fact that though Neumann is reaping the majority of the benefits of this deal, many WeWork employees will be left with stock options that are at a lowly $20 a share. This, coupled with the fact that thousands of employees will likely be laid off soon, paints a grim picture.
"SoftBank needed to do this to optimize their chances of recouping their initial investment on top of their new additional investment," said Loren Trimble, the CEO of AArete, a global consulting firm. "Anytime anyone gets an offer for [$1.7 billion] from a company with such financial uncertainty, where it could potentially run out of cash in the next 30 to 40 days, should feel fortunate."