Why The Heck Did Softbank Pay Neumann $1.7 Billion?

Seriously, why offer such a damn big payday for someone you’re just firing?

WeWork’s ousted founder Adam Neumann will land a $1.7bn (£1.3bn) pay day as part of a rescue deal from investor SoftBank – while thousands of the company’s ordinary staff face an uncertain future.

The business decided on Tuesday to accept funding from SoftBank in a move that cut its valuation to just $8bn and removed Mr Neumann as chairman. The firm had previously hoped to float for as much as $47bn.

As part of the deal, he relinquished his voting shares in the firm along with his board seat.

Mr Neumann will be given a $185m consulting fee and will also sell $1bn of stock to SoftBank, and will also get $500m in credit so he can pay off existing loans, The Wall Street Journal reported.

The secret is that Neumann still had the majority of the votes attached to the stock. It’s a Mexican Standoff situation that is.

Think about it from Neumann’s point of view. WeWork is obviously bust without some vast capital injection. At which point his stock goes to zero. That then means he goes bust and loses everything. Because he’s borrowed a whole lotta money against that stock value to purchase other gewgaws.

Neumann is bust unless he gets a very generous offer for his stock. Anything less than a very generous offer means he’s still bust. His negotiating position is thus, give me lots and lots or I’ll let it go bust ‘cuz makes no difference to me.

Softbank is in a different place. Sunk costs are sunk costs but still, they’re thinking they’ve put $8 or $10 billion into this so far. They really don’t want it to go bust. They’re thus willing – sure, sunk costs are sunk costs – to put some more in. Even without the sunk cost fallacy it might be true that refunding makes sense.

What produces the least loss for Softbank? Buying out Neumann at that $1.7 billion, thereby making sure WeWork doesn’t go bust?

Well, yes, obviously, as that’s the decision they took.

Why did Neumann get all that cash? Because he still had a majority of the voting stock. Thus he was in the position to be able to crash the whole show if he didn’t get all that cash.

After all, to him this is a one time game. No one’s ever going to hire or fund him every again so what the hell does he care about reputation?

5
Leave a Reply

avatar
2 Comment threads
3 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
4 Comment authors
Bloke in North DorsetJimDavid MooreSurreptitious Evil Recent comment authors
  Subscribe  
newest oldest most voted
Notify of
Jim
Guest
Jim

Why couldn’t they just let it go bust and buy the business as whole from the receiver (or whatever version of that they have in the US)?

Surreptitious Evil
Guest
Surreptitious Evil

Wouldn’t that have meant that they would have had to write-down their existing investment and loans?

Jim
Guest
Jim

So? That money’s long gone. Don’t they have to mark to market anyway?

Bloke in North Dorset
Guest
Bloke in North Dorset

As a guess, and I’m no tax expert, but if they buy it from the receiver they can’t use their previous losses against future profits.

David Moore
Guest
David Moore

I do wonder if there is more going on here. Perhaps it’s simply hubris driving it all, but I very much doubt there is ever going to be a viable business out of Wework.

In reading about Wework, I did come across a truly great term; Yogababble.