SoftBank could walk away from the $3 billion WeWork stock buybacks it agreed to as part of its bailout plan: WSJ

• SoftBank could walk away from part of its WeWork bailout, the Wall Street Journal reported Tuesday.
• In a notice to WeWork shareholders, the Japanese investor said regulatory inquiries into WeWork could be justification to back out of a deal to repurchase $3 billion of WeWork shares.
• If SoftBank didn't execute that part of the bailout, it wouldn't affect the $5 billion debt financing package - but it could mean that founder Adam Neumann wouldn't sell his shares back.
• The news comes just as WeWork's business will likely be hit hard by the pandemic, which is shuttering office buildings globally.
• For more WeWork stories, click here.

SoftBank Group could walk away from a significant part of its multi-billion dollar WeWork bailout program, the Wall Street Journal reported on Tuesday.

The Japanese investor sent a notice to WeWork shareholders Tuesday that it could back out of its agreement to purchase up to $3 billion of WeWork shares because of probes from the Securities and Exchange Commission and the Justice Department.

Spokespeople for WeWork and SoftBank declined to comment. Neumann's representative, who lives in Israel, could not be immediately reached for comment.

In November, Bloomberg reported that the SEC was looking at whether WeWork violated financial rules before its attempt at an initial public offering, which was ultimately shelved. In a December hearing with SEC chairman Jay Clayton, Senator Tom Cotton - who had derided WeWork founder Adam Neumann in the past - questioned how the entrepreneur could legally exert so much control over his company and why the SEC didn't step in sooner.

The New York State Attorney General was also investigating WeWork in the late fall, including whether Neumann had been enriching himself through intertwining his personal and corporate investments.

Tender offer in jeopardy

The stock buyback program was set up in part to allow Neumann, who was ousted in September, to sell $970 million of his stock to SoftBank. Under the plan, SoftBank would own 80% of WeWork after the full tender closed, a date which was set for April 1.

If SoftBank backed out of the tender offer, it would not affect the $5 billion financing deal that was part of the original bailout, the Wall Street Journal reported.

And SoftBank could still go through with the tender, or use it as a tactic to negotiate or delay.

The notice to WeWork shareholders comes as the embattled office company is likely to face steep economic challenges under new CEO Sandeep Mathrani. The coronavirus pandemic is closing offices and even cities across the world.

WeWork's business model, which is based largely on short-term rental agreements, has never been tested in a global downturn. Its only publicly-traded peer, IWG, has seen its stock crash 67% in a month.

Last year, Neumann told Business Insider that WeWork would actually benefit from a downturn, a claim experts then said they doubted.

In a May story, analyst Andrew Shepherd-Barron at Peel Hunt, who has followed IWG for 17 years, said WeWork's brand loyalty was unlikely to carry the company through a recession.

"If there's any hiccup in the market - watch out."

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