SoftBank's Masayoshi Son to pitch US investors under cloud of WeWork

Masayoshi Son (pictured) will head to New York next month for the first time since the implosion of WeWork, seeking to persuade hedge funds and institutional investors that the fortunes of SoftBank Group have turned since the disastrous investment.

The Japanese billionaire is scheduled to address investors on March 2. There, he could point to the approved sale of Sprint, a rally in Uber Technologies shares and Elliott Management’s purchase of SoftBank stock as signs of progress at his company, said people familiar with the plans. It’s unclear where WeWork will fit into the agenda.

Within SoftBank, there’s disagreement about how to convey the company’s strategy. Son, 62, is known for his eccentric financial presentations, which have included a “hypothetical illustration” of WeWork profitability and stock photos of ocean waves and calm waters. One memorable slide from 2014 contained only a drawing of a goose and the words: “SoftBank = Goose.” Many staff at headquarters in Tokyo love the founder’s showmanship, but some senior executives are exasperated and argue a clearer and more sober message is needed, said people familiar with internal discussions.

Ultimately, Son will decide. He has downplayed any pressure from Elliott, a New York-based activist investor that disclosed a nearly $3 billion stake in SoftBank this month. Son called Elliott an “important partner” and said he’s in broad agreement with the investor’s arguments for buybacks and increasing the stock price. Son has signaled less receptiveness to Elliott’s other suggestions: selling more of the stake in Alibaba Group Holding and reining in the Vision Fund, a $100 billion investment vehicle that accounted for more than $10 billion of losses in the past two quarters.

In private meetings with SoftBank, Elliott raised issues over the clarity of SoftBank’s strategy, people familiar with the talks said.

SoftBank is planning to make hires within its investor relations department to help shape the message to shareholders. SoftBank declined to comment. A spokesperson for Elliott declined to comment.

“Right now, serious heat is being applied on Son,” said Justin Tang, head of Asian research at United First Partners in Singapore. “Son has to be seen actually doing something.”T-Mobile, Sprint agree to new terms

Son’s heading into the meeting with one win under his belt: T-Mobile US and Sprint have agreed to new terms for their pending merger, a key step toward completing a transaction that will unload the loss-making carrier and unlock new capital for SoftBank.

Although next month’s event was scheduled before Elliott disclosed its stake and is not designed to specifically address the activist investor’s involvement, it will be a focus for attendees, said people familiar with the preparations. Executives are bracing for questions about Elliott’s intentions and how far the shareholder will go to boost the stock’s value.

Goldman Sachs Group is organising the March event, the people said. The firm, which helped Japan’s Sony and Toshiba in their dealings with activist investors, is vying for the job of advising SoftBank on Elliott, said a different person said.

However, SoftBank is likely to manage the relationship in-house, another person said. The job may fall to Marcelo Claure, the chief operating officer who’s helping oversee the WeWork debacle; Katsunori Sago, the chief strategy officer and a former Goldman Sachs executive; or Ron Fisher, a director and trusted adviser to Son. A Goldman representative declined to comment on SoftBank.

Dogs and pizza

SoftBank is recovering from a series of stumbles in recent months. WeWork’s plan to go public last year imploded, forcing SoftBank to arrange a rescue financing of $9.5 billion in October. Uber, despite a two-month surge, is still trading about 10 per cent below last year’s offering price. The Vision Fund has suffered other high-profile setbacks, including investments in failed online retailer Brandless, dog-walking app Wag Labs and pizza robot company Zume Pizza.

Elliott has said it took the stake in SoftBank because the firm’s shares are woefully undervalued compared with its assets. SoftBank’s own sum-of-parts calculation puts its total value at 12,300 yen a share ($111). That’s more than double SoftBank’s actual share price, which values the company at about $104 billion. Elliott has pegged SoftBank’s net asset value at about $230 billion, people familiar with the discussions have said.

The disconnect between what SoftBank and Elliott say the company is worth and the market value can be explained by several quirks of how the business is run, according to a report from Pierre Ferragu, an analyst at New Street Research. Many shareholders would like the company to return more capital and improve its governance, he wrote. Risks associated with the Vision Fund and a lack of details about tax liabilities associated with cashing out its investments are other factors.

SoftBank recognised the need for more oversight as early as 2018, when it charged Claure with a broad review of operations across SoftBank companies. Claure, the former head of Sprint, spent months assembling a team of about 40 executives. In the end, he was forced to cede control of the so-called SoftBank Operating Group to the man it was supposed to be overseeing: Rajeev Misra, the head of the Vision Fund.

Elliott wants SoftBank to set up a special committee to review investment processes at the Vision Fund. Elliott argues the fund has dragged down the share price despite making up a small portion of assets under management, said people familiar with the discussions.

Some at SoftBank are resistant to the idea of an oversight committee. Instead, SoftBank is seeking to resolve issues at the Vision Fund with new governance standards for the companies it invests in. The new rules will encompass how the fund approaches the composition of the board of directors, founder and management rights, rights of shareholders, and mitigation of conflicts of interest. Son has conceded that missteps with the original fund is making it difficult to raise money for a successor. He has said SoftBank may need to invest in start-ups using its own capital for a year or two.

‘Black Swan’

Elliott is also calling for a buyback of as much as $20 billion. A repurchase of that scale could boost SoftBank’s shares by 40 per cent, Ferragu estimated. SoftBank’s last share repurchase was announced about a year ago, a record 600 billion yen. It sparked a rally that pushed the stock to its highest price in about two decades. SoftBank said on Wednesday it plans to borrow as much as $4.5 billion against shares of its Japanese telecom unit. SoftBank’s debt load exceeds $120 billion. Son’s reliance on debt is raising alarms, said Tang. “He’s going to get wiped out if there is some black swan event,” Tang said. “SoftBank needs to de-leverage, and the best way to do it is to sell the Alibaba stake.”

Son, who often goes by the nickname Masa, controls more than a quarter of SoftBank stock through various vehicles, and the company bylaws require two-thirds of votes to pass any proposal made through the board, according to a person with knowledge of the rules. “Unless everyone is against him,” said Tang, “it’s not possible to dislodge Masa.”

WeWork to begin US job cuts 'in earnest' this week to stabilise business

WeWork said it will begin job cuts “in earnest” this week in the US, a bid by the struggling office-sharing startup to stabilize its business amid staggering losses. Executive Chairman Marcelo Claure told staff in an email Monday that the process, which will involve eliminating and scaling back some functions and responsibilities, “will make us stronger and better able to generate even more opportunities over the coming months and years.”

Soon after withdrawing its registration for an initial public offering in September, WeWork told staff to brace for extensive job cuts. People familiar with the matter have said they could total about 2,000 or some 16 per cent of the global workforce. Some of those cuts have already begun. Claure said he plans to brief staff about the company’s future on Friday, when he’s expected to tease a five-year plan for WeWork.

A WeWork spokeswoman declined to comment on the job cuts. After the company’s valuation plummeted from $47 billion to about $8 billion, WeWork is seeking to cut costs and show a path to profitability in order to potentially attempt an IPO again next year. That path, as outlined by the company’s co-chief executive officers, includes selling assets and cutting jobs. The company reported a net loss of $1.25 billion in the third quarter, eclipsing its sales and more than doubling its loss from the same period last year.

WeWork employees are accustomed to routine firings, unlike at the typical startup in growth mode. The nine-year-old company periodically trimmed the ranks, WeWork has said, to shed under-performers. It dismissed hundreds of employees in 2016 and held a staff meeting to discuss the move that concluded with a performance from a member of the hip-hop group Run-DMC. WeWork fired about 300 more this spring.

As WeWork’s employees brace for jobs cuts, they have started to organize. Two weeks ago, a group of employees presented management with a letter asking for changes such as salary transparency, more employee involvement in management decisions and an end to forced arbitration. The same group also asked for fair treatment for WeWork’s cleaning staff, whose in-house jobs are being cut and are being re-hired by an outside contracting firm.

After Neumann's exit, WeWork in talks to hire T-Mobile's John Legere as CEO

WeWork is in talks with T-Mobile US Inc Chief Executive Officer John Legere to take over as the head of the office-sharing start-up, the Wall Street Journal reported on Monday, citing people familiar with the matter.

The talks come weeks after SoftBank Group spent more than $10 billion to take over WeWork, including a $1.7 billion payoff to its co-founder Adam Neumann to relinquish control.

WeWork did not immediately respond to Reuters’ request for comment.

SoftBank Chief Operating Officer Marcelo Claure became the executive chairman of WeWork parent The We Company, following its bailout by the Japanese firm.

Artie Minson, chief financial officer, and Sebastian Gunningham, vice chairman, currently serve as the co-chief executives of The We Company.

SoftBank owns 80 per cent of the troubled office-sharing startup, but has not consolidated the company on its books because it will not hold a majority of voting rights.

SoftBank has four board seats on the company's expanded 10-member board. The startup is looking for a new leader who could join as soon as January, the WSJ report said.

As WeWork tries to repair its business, there's a lot of space to fill

As WeWork prepared for what it thought would be a blockbuster initial public offering (IPO), the company built out dozens of new offices and filled them with more than 100,000 desks. Once the IPO imploded, WeWork was left with a lot of space to fill and little cash to bring in new business.

The occupancy rate for its buildings dropped to 80 per cent in the third quarter, from 83 per cent a year ago, parent company We Co said in a business report on Friday. The New York-based company also confirmed that it would divest business units, including the event-organising app Meetup and its investment in the Wing.

WeWork said the increase in office vacancies was a result of its rapid expansion, which added new desks it needs to fill. Occupancy in China and elsewhere in Asia were particularly low. A more favourable statistic showed customers were dropping memberships at a reduced rate of 2.7 per cent a month, from 3.9 per cent two years ago.

As WeWork tries to repair its business, there's a lot of space to fill

The newly released report had been compiled for lenders in October for a potential debt package organised by JPMorgan Chase & Co. The data was previously only available to those who signed nondisclosure agreements, WeWork said. The company plans to brief bondholders on Wednesday on third-quarter results. Over the summer, WeWork had ramped up expansion efforts because it anticipated being a public company by the end of the year and wanted to have a strong showing for its first financial report as a public company, a person familiar with the matter has said. That was a miscalculation.

WeWork’s investor presentation emphasises repeatedly that it’s turning over a new leaf. One slide describes the “member experience” for its customers as “focused,” as opposed to “distracted” in the years leading up to the failed IPO. Instead of “founder-led” in the past, the company’s leadership is now “proven executives” — a nod to the September departure of the controversial WeWork co-founder, Adam Neumann, who had been ousted as chief executive officer. WeWork will now have a “disciplined focus on profitable market share expansion.”

The new executive chairman, Marcelo Claure, told staff in a meeting last month to expect cuts, and people familiar with the plans have said some 2,000 of WeWork’s more than 12,500 employees could lose their jobs. WeWork began cuts this week at Meetup. Over the next three months, in order to lower expenses, the company plans to eliminate jobs in administrative, growth-related and other units, according to the report.

Teams of workers who staff their buildings will not be affected.

In anticipation of further reductions, hundreds of WeWork employees signed a letter presented to management this week asking for fair severance for workers, an end to forced arbitration agreements and a “seat at the table” in discussions with management. “We want the employees who remain at WeWork, and those who join in the future, to inherit something positive we left behind,” the letter said

WeWork India fights for funds, relevance; hopes to raise $200 million

Feeling the domino effect of WeWork’s stock market launch debacle, its India franchise is planning to raise $200 million on its own by the end of this year. The firm, which reportedly saw a breakdown of talks to raise $100 million with a bank after the WeWork IPO launch debacle, hopes to prove that its India business is making profits.

Jitu Virwani, chairman and managing director of Embassy Group, said the firm was also looking at disinvestment of Rs 4,000 crore ($563 million), part of which might go towards the co-working business.

“We plan to raise Rs 4,000 crore to pare debt and keep cash reserve for the company. We are in talks with a couple of foreign investors and may also form an investment platform with one of them.”

Virwani said the India co-working business was profitable, but the turmoil in the global entity did lead to a breakdown in talks for fundraise.

“Adam Neumann (WeWork co-founder) or no Adam Neumann, our business is here to stay. It has been a bit of a challenge for us, we had a bit of a setback when we were looking to raise $100 million from ICICI Bank. But we’ve decided to put our own money into the business (if needed),” he said.

'We are in talks with a couple of foreign investors and may form an investment platform with one of them'- Jitu Virwani, CMD, Embassy Group‘We are in talks with a couple of foreign investors and may form an investment platform with one of them’- Jitu Virwani, CMD, Embassy GroupWeWork India is owned by Embassy Buildcon that, in turn, is owned by Virwani. Embassy is one of the largest developers and owns several commercial and residential projects.

Virwani’s son Karan, who heads WeWork India, said the firm was in talks with multiple investors and hoped to close the round by the end of this year.

“We have gone to multiple investors, including some of the existing ones in WeWork, a good mix of Indian and foreign funds, some of whom are among the largest equity investors which are in the market. Also, a lot of structured debt equity players who would look at the opportunity look at the cash flow and profitability and be willing to invest in the business. We are hoping to raise $200 million by end of this year,” he said.

He said WeWork India was profitable at an operational level and would achieve overall profitability by the end of next year. He also stressed that the unit economics of WeWork India makes sense.

He said in India they operated over 45,000 desks. The plan is to get to 100,000 desk milestone by 2020-end. Facing competition from deep-pocketed players, the company is launching desks that would be priced at around Rs 5,000.

WeWork India forays into Noida market, to open 3 coworking centres soon

WeWork India, owned by realty firm Embassy Group, is foraying into Noida market, and has taken on lease over 3 lakh sq ft office space to open three coworking centres comprising nearly 3,900 seats.

WeWork India currently has 26 operational coworking centres with 46,000 seating capacity. It has 9 centres in Bengaluru, 10 in Mumbai, 6 in Gurugram and one in Pune where seats are available in a price range of Rs 5,000 to Rs 40,000 per desk per month.

According to sources, WeWork India is now entering into Noida market in a big way and will soon open three new coworking centres with 3,900 seats.

It has taken on lease nearly 1.4 lakh sq ft area from Berger Group, 74,000 sq ft from Logix and around 92,000 sq ft from Advant in Noida for three new facilities, they added.

When contacted, WeWork India spokesperson confirmed that it is entering into Noida market but did not share details.

"We are seeing an uptick in the demand for collaborative spaces by large enterprises because of flexible lease terms, lower deposit requirements, overall cost reduction as well as plug-and-play simplicity that collaborative spaces offer. Keeping this demand in mind, WeWork is now strengthening its presence by entering the Noida market," the spokesperson said.

The growing demand from freelancers, consultants and corporates has led to a growth in the co-working sector like never before, the spokesperson added.

"We are very happy to announce our partnership with WeWork India as they enter Noida. Demand for office space in Noida is growing at a fast rate owing to the presence of service industries, large corporations and media hubs all of which are now looking to work out of a collaborative workspace that caters to all their requirements," said Sunil Sharma, Managing Director, Advant India.

Bengaluru-based Embassy Group, a major player in Indian commercial real estate that launched India's first REIT earlier this year, had partnered US-based WeWork in 2016 to enter into coworking business.

WeWork India is an independent entity with the right to execute its business in India and it pays a management fee to the American firm.

Last week, Embassy Group said there would be no impact on the Indian operation of co-working business due to deferment of initial public offering (IPO) of US-based WeWork' parent - The We Company.

The IPO was postponed a week after the SoftBank-backed startup removed founder Adam Neumann as its chief executive officer.

"WeWork India, which is wholly owned and funded by Embassy Group, is our big bet in this space. WeWork India is a strategic long-term play for Embassy group and its performance has exceeded our expectations this year," an Embassy Group spokesperson had said.

Under the leadership of Karan Virwani and Ryan Bennett, the WeWork India team is currently focused on strategic expansion with an accelerated path to profitability, the spokesperson added.

WeWork halts all new leases with property owners to trim losses: Report

WeWork is halting all new lease agreements with property owners as the U.S. office-sharing startup looks to curtail costs, the Financial Times reported on Thursday citing people briefed on the matter.

Parent firm We Company postponed its initial public offering last week after investor scrutiny over widening losses and corporate governance, as well as a business model that relies on long-term liabilities and short-term revenue.

WeWork did not respond to a Reuters request for comment on the report.

WeWork considering $1.9 billion deal for control of India unit

WeWork Cos. is considering a deal to take majority control of its India affiliate, according to people familiar with the matter, a deal that would allow the shared-office startup to consolidate financial results from the fast-growing unit as it prepares for an initial public offering this year.

The New York-based company is in talks to buy around 70% of WeWork India at a valuation of about $2.75 billion, said one of the people, who asked not to be named because the discussions are private. The deal, $1.9 billion at those terms, would be part cash and part stock, and could close as early as August, the person said. The transaction isn’t finalized so terms may change or the talks could break down.

WeWork India is a brand franchisee controlled by Buildcon LLP, which is owned by real estate billionaire Jitu Virwani and his son Karan Virwani. The elder Virwani is chairman and managing director of Bangalore-based Indian real estate developer Embassy Group, while Karan is WeWork India CEO. The license ends in 2021.

Adding India to its asset portfolio may benefit WeWork as it preps for its initial public offering. It’s aiming to avoid the kind of rocky start Uber Technologies Inc. endured after it went public in May. Its swooning shares cast a shadow over the unicorns like WeWork that are seeking to raise money from public investors for the first time.

WeWork, founded in 2010 and last valued at $47 billion, pioneered the concept of shared work spaces, expanding to 425 office locations in 36 countries. With trendy work areas, colorful phone booth-like conversation areas and lively community hangouts serving beer on tap, the startup has reshaped office practices around the world.

Adam Neumann, co-founder and chief executive officer, has built the company by cultivating an eccentric office culture, down to its mission statement to “elevate the world’s consciousness.” Still, WeWork has yet to prove it can make money, with losses more than doubling last year to $1.93 billion, while revenue also more than doubled to $1.82 billion.

Neumann explained plans to improve the company’s finances to Bloomberg Businessweek this year, including the creation of an investment fund to buy stakes in buildings where it will be a major tenant. He’s won backing from deep-pocketed investors, including SoftBank Group Corp.

India is one of WeWork’s fastest-growing markets, with 35,000 seats in more than 20 shared locations 18 months after launch. It hosts companies such as Microsoft Corp. and Amazon.com Inc. in Bangalore, and Spotify Technology SA and Bumble in Mumbai. The India unit projects to grow to 90,000 seats by March next year, the end of fiscal 2020.

Co-working startups are proliferating in the country, creating a thriving community for entrepreneurs and small startups. Co-working shot up to nearly 10% of total office space leasing from January to September 2018, compared with 4% the year before, according to a report by real estate services firm JLL.