A special committee of WeWork board members issued a legal challenge over SoftBank's withdrawal from a US$3 billion ($5b) deal on Tuesday, in what is expected to be the first of several legal disputes over the Japanese group's decision to pull out of an earlier agreed share buyout.
The committee's lawsuit against SoftBank and its Saudi Arabia-backed Vision Fund, filed in a Delaware court, said the group had "engaged in a purposeful campaign to avoid completion of the tender offer".
The US$3b agreement was just one part of a multibillion-dollar rescue package SoftBank negotiated with WeWork last autumn that injected US$1.5b in emergency capital into the office company and provided new debt to stave off imminent insolvency.
The lawsuit represents an escalation of hostilities between two of the shareholders who helped turn WeWork into one of the world's most highly valued companies before its crash last year, when a failed initial public offering left the high-spending company with just a few weeks worth of cash and reset its valuation from US$47b to under US$10b.
The special committee includes Bruce Dunlevie of Benchmark Capital, which bolstered WeWork's claim to be a tech company when it became the first Silicon Valley investor to back Adam Neumann's start-up in 2011. The committee's other member, Coach chairman Lew Frankfort, is another longtime WeWork board member and shareholder.
"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 committee said in a statement.
SoftBank's legal argument hinges on a provision of the rescue deal, which permitted it to back out of the share purchases if SoftBank, the Vision Fund or WeWork faced "material liability" over investigations into the company and its co-founder Adam Neumann, who stepped down last year.
The special committee said that none of the investigations into WeWork and its behaviour, which includes an inquiry from the Securities and Exchange Commission, would result in any material liability to the company. It added that SoftBank was aware of all of the investigations when it amended its rescue deal in December.
The US$3b deal was also dependent on regulatory approval as well as separate transactions involving two WeWork joint ventures in Asia.
"None of the conditions that SoftBank listed gave it a legitimate basis to terminate the tender offer," attorneys from Wilson Sonsini, which is representing the committee, wrote in their complaint.
How a judge interprets those provisions and determines potential material damages will decide the fate of suit.
SoftBank will "vigorously" defend itself, a spokesperson said, describing the lawsuit as "a desperate and misguided attempt" to rewrite the tender agreement.
"Nothing in the special committee's filing today credibly refutes SoftBank's decision to terminate the tender offer," the Japanese group said, adding that it remained fully committed to WeWork's success.
The legal battle between WeWork's largest shareholders has broken out as the economic tumult triggered by the coronavirus pandemic is putting new pressure on its business.
Most of the group's tenants are on short-term leases, allowing them to walk away in a downturn, and thousands have already withheld rent or told the company they plan to terminate their leases, according to people familiar with the details.
The company, which had US$4.4b of cash and commitments at the end of last year, has also lost access to US$1.1b of debt financing that had been contingent on the completion of the tender offer. Lawyers for the special committee said WeWork could be "further imperilled by losing access to this potential source of funding".
SoftBank and the Vision Fund declined to comment.
Written by: Eric Platt and Andrew Edgecliffe-Johnson
© Financial Times