WeWork board members are suing SoftBank for backing out of its plan to buy $3 billion of shares, and former CEO Adam Neumann is still weighing legal options

Alessandro Di Ciommo/Getty Images, Michael Kovac/Getty Images, Business Insider

SoftBank CEO Masayoshi Son, left, and WeWork CEO Adam Neumann.

• Part of WeWork's board is suing SoftBank and its venture-capital fund for backing out of its October agreement to buy $3 billion of WeWork shares.
• The deal was part of SoftBank's bailout for WeWork and would have allowed investors and up to 2,000 current and former employees to cash out.
• The lawsuit seeks either the completion of the tender offer or monetary damages.
• WeWork cofounder Adam Neumann is still weighing his legal options, a source close to him said.
• For more WeWork stories, click here.

Less than a week after SoftBank backed out of a big part of its WeWork bailout package, the first lawsuit has hit.

On Tuesday, a special committee of WeWork's board of directors - Bruce Dunlevie, who is a partner at the venture-capital firm Benchmark, and Lew Frankfort, the former CEO of Coach - filed a lawsuit against SoftBank and its Vision Fund. The committee is seeking to force SoftBank to complete the tender offer, which was announced in October, or to give the committee money to compensate for their loss.

Representatives for SoftBank and WeWork declined to comment.

WeWork cofounder Adam Neumann is still weighing his legal options, a source close to him said, which could include letting the special committee take the lead through this lawsuit or pursuing his own, separate legal action. Through the tender offer, Neumann could have sold up to $970 million of his stock.

In a statement, the special committee said the Japanese investor "has engaged in a purposeful campaign to avoid completion of the tender offer."

The deal would have allowed investors and up to 2,000 current and former employees to cash out. Employees represented about $450 million of the tender offer.

Benchmark planned to sell $340 million worth of WeWork shares to SoftBank as part of the tender offer, which would have made it the biggest individual seller in the deal other than Neumann, Business Insider previously reported.

SoftBank's decision also meant WeWork won't be able to tap into a $1.1 billion credit line from the Japanese conglomerate, since that debt financing was conditioned on SoftBank completing its share-purchase plan.

The lawsuit also mentioned a previously-unreported detail about WeWork's board composition. Last month, SoftBank quietly named its chief compliance officer, Chad Fentress, to WeWork's board.

'Clear breach of its contractual obligations'

The committee's statement said in part:

"SoftBank's failure to consummate the tender offer is a clear breach of its contractual obligations under the [Master Transaction Agreement] as well as a breach of SoftBank's fiduciary obligations to WeWork's minority stockholders, including hundreds of current and former employees. The Special Committee regrets the fact that SoftBank continues to put its own interests ahead of those of WeWork's minority stockholders."

The special committee is suing in Delaware for breach of contract and breach of fiduciary duty.

SoftBank said that it was backing out of the tender offer because of various government investigations, among other issues. The special committee said in the lawsuit that the investor knew about the investigations and a stockholder lawsuit when it agreed to the tender offer in October. Since then, there have been no announcements about government actions concerning Neumann, WeWork's failed initial public offering, or anything else to do with the company.

SoftBank's withdrawal puts Marcelo Claure, the WeWork chairman and SoftBank chief operating officer, in an especially tough spot as he balances leading a company navigating the coronavirus crisis as its biggest investor backs out of a major promise. In an October all-staff meeting leaked to Business Insider, he reassured employees who were nervous about the value of their options.

"Nobody should have a worthless option," Claure said in October.

WeWork was once the crown jewel of SoftBank's $100 billion original Vision Fund, with a valuation of some $47 billion. But public investors frowned on the company's massive losses, high costs, and questionable executive transactions, forcing WeWork to abandon its IPO effort even after offering to cut its valuation by nearly 75%.

After the failed IPO, WeWork was mere weeks away from running out of money before SoftBank stepped in with its rescue package. That package helped stabilize the company for the short term, but it's still burning through copious amounts of cash - more than $1 billion in the fourth quarter alone.

The company went through $1.4 billion in the last quarter of 2019, per an investor letter released last week. WeWork ended the year with $4.4 billion in cash and cash commitments.

Read the full lawsuit here:

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We Company v SoftBank Group Corp (PDF)
We Company v SoftBank Group Corp (Text)

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