WeWork Fraud Turns Into A Massive Outright Theft

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Tech and finance experts are shocked by SoftBank’s ‘stone-cold crazy’ $1.7 billion golden parachute for ousted WeWork CEO Adam Neumann

Aaron Holmes
BUSINESS INSIDER

Adam Neumann. Reuters

  • The news that SoftBank would give Adam Neumann close to $1.7 billion to leave WeWork’s board and give up his voting power sent reverberations through the tech and finance worlds on Tuesday morning.
  • Experts largely agreed that SoftBank made the right move by separating Neumann from WeWork, but many were bowled over by the astronomical value of Neumann’s golden parachute.
  • Legal experts said that while a shareholder lawsuit was unlikely, shareholders had good reason to be upset by the deal.
  • Meanwhile, outside experts said the episode could tarnish SoftBank’s reputation.
  • Click here for more WeWork coverage.

The Japanese investor SoftBank will give the former WeWork CEO Adam Neumann close to $1.7 billion to leave the company’s board and give up his voting power, The Wall Street Journal reported on Tuesday morning, sending reverberations through the worlds of tech and finance.

In the wake of the news, five experts, including corporate-law professors, analysts, and tech executives, spoke with Business Insider about their reactions to SoftBank’s decision.

While the experts largely agreed that SoftBank made the right move by taking control of WeWork away from Neumann, they were astounded by the size of Neumann’s golden parachute.

“It’s stone-cold crazy,” said Eric Schiffer, CEO of the Patriarch Organization, a technology and media private-equity firm. “I think SoftBank blinked, and Neumann walks away with one of the biggest hauls in modern history when he should have gotten very little.”

The embattled office-sharing startup was fighting to stay afloat after its initial public offering failed and Neumann stepped down as CEO last month. WeWork’s board this week was also weighing a buyout from JPMorgan, Business Insider reported.

SoftBank’s buyout values the company at $8 billion, down from the $47 billion valuation it gave the company earlier this year. As part of the deal, Neumann is expected to sell nearly $1 billion worth of stock to SoftBank and receive $500 million in credit as well as a $185 million “consulting fee,” according to The Journal.

A WeWork representative was not immediately available to comment.

Here are the key takeaways from experts who spoke with Business Insider about the deal.

Experts think SoftBank was right to take WeWork away from Neumann but are surprised by how much money he got from the deal

Separating Neumann from the future of WeWork was largely seen as the right move for SoftBank.

“SoftBank needed to do this to optimize their chances of recouping their initial investment on top of their new additional investment,” said Loren Trimble, the CEO of AArete, a global consulting firm. “Anytime anyone gets an offer for [$1.7 billion] from a company with such financial uncertainty, where it could potentially run out of cash in the next 30 to 40 days, should feel fortunate.”

The sheer amount of money SoftBank is said to be giving Neumann struck multiple experts as surprising.

“I think anything over a dollar was more than they needed to pay,” Schiffer said. “What it proves is Neumann’s mastery at sophisticated negotiation, when in reality he had very little cards. What occurred was shameful, for him to have gotten anything.”

Nir Kossovsky, the CEO of Steel City Re, a risk consulting and insurance firm, said that while severing ties with Neumann was the right move for the future of WeWork, the size of Neumann’s “golden parachute” could reflect poorly on SoftBank’s reputation.

“WeWork and SoftBank and perhaps even JPMorgan are in some level of a reputational crisis right now,” Kossovsky said. “Reputation risk can often be mitigated by sacrificing an executive or a board member … but throwing him overboard with a golden parachute does deliver a mixed message.”

Legal experts say a shareholder lawsuit against WeWork seems unlikely

Minor Myers, a professor at the University of Connecticut Law School specializing in corporate finance, said WeWork was unlikely to see a shareholder lawsuit, even if shareholders have good reason to be upset about how much money Neumann walked away with.

“The existing group of stockholders is employees and sophisticated investors,” Myers said. “These are people who are generally reluctant to bring lawsuits, because you have to say, ‘Hey, you tricked me,’ which doesn’t make you look particularly sophisticated.”

Charles Korsmo, a professor of corporate law at Case Western Reserve, said he didn’t expect a shareholder lawsuit either.

Shareholders “are getting the opportunity to sell into SoftBank’s tender offer, so they are probably feeling better than they were yesterday,” he said. “The WeWork shareholders themselves are primarily sophisticated parties who would likely be embarrassed to sue claiming they had been bamboozled.”

But experts agree that shareholders have good reason to be upset at the deal

Myers noted that WeWork’s S-1 filing said Neumann was integral to the company’s success, which could have made his departure a liability — but since the company never went public, those claims aren’t grounds for a suit.

“There’s a reason to be upset with SoftBank,” Myers said. “If you think there’s a problem with Adam Neumann, why didn’t you do this before?”

Korsmo predicted that SoftBank, which has sunk more than $10 billion into WeWork already, would face shareholder ire.

“If anyone has reason for feeling aggrieved, it is the public shareholders of SoftBank, which appears to be throwing good money after bad,” Korsmo said.

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https://www.businessinsider.com/experts-react-softbank-17-billion-wework-buyout-adam-neumann-2019-10

 

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