SoftBank Reportedly Plans Up to $20B Investment in WeWork

Japanese conglomerate SoftBank Group Corp. on Wednesday is reported to be aiming for a majority stake in US co-working startup WeWork Cos. Inc. as the shared office space provider raises additional capital to speed up its expansion.

Sources with knowledge of the matter stated that SoftBank is in discussions about investing between $15 billion and $20 billion that would likely come from SoftBank’s Vision Fund, although the pricing and other details have yet to be completed, adding that it was not a done deal.

WeWork and SoftBank declined to comment.

A smaller investment by SoftBank being considered earlier in the year valued WeWork at up to $40 billion, according to news released in June.

The $92 billion Vision Fund, which is backed mainly by Saudi Arabia and Abu Dhabi wealth funds as well as SoftBank, already owns 20 percent of WeWork after its $4.4 billion investment in August 2017, $1.4 billion of which was set aside to help the company expand in China, Japan, and Southeast Asia.

Analyst Chris Lane said with SoftBank having little difficulty in raising funds, its main concern is finding assets capable of generating attractive enough return.

The beauty of WeWork as a business is because they are trying to go global and they are moving quite fast they can absorb that capital, Lane stated.

The business of the 8-year-old provider of share office space is growing at a fast rate, with second-quarter revenue more than doubling from the previous year and memberships jumping to 268,000.

WeWork in September was also able to surpassed JPMorgan Chase & Co., the largest US bank, as the biggest tenant of Manhattan office space, showing increasing demand for flexible leases.

The company has expanded across 23 countries and is on track to earn over $2 billion in sales this year.

Skepticism over WeWork’s Prospects

Despite WeWork’s accelerated growth, some Silicon Valley investors have expressed uncertainty over the company’s prospects.

The company’s rapid expansion and several diverse acquisitions had investors worry, viewing the company as an overvalued real estate play at risk of a property market decline.

In the first six months of the year, WeWork has lost hundreds of millions of dollars, according to media reports. The startup stated in August that its losses soared in the second quarter.

The potential deal which is a huge investment in a private company, would effectively give SoftBank control of the rapidly expanding office sharing group.   

A majority stake in WeWork for SoftBank would also signal a turnaround from its usual approach of buying minority stakes in high-profile late-stage startups.

SoftBank, which operates the world’s largest equity fund, has focused its ownership of late-stage startups in minority stakes, as it looks for potential targets for its vast pool of capital.   

The Japanese conglomerate has invested billions of dollars in loss-making US ride-haling firm Uber Technologies Inc, but it only holds a minority stake.

Shares of SoftBank dropped 5.4 percent to ¥10,130.0 and hit their biggest one-day low in nearly two years on Wednesday, partly due to concerns over the prospects of WeWork. Traders said recent weakness in the tech sector has also put SoftBank’s stock under pressure.

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