Neumann accuses SoftBank of abuse of power over WeWork deal

Adam Neumann, WeWork’s co-founder and former chief executive, has broken his silence and accused SoftBank of abusing its power to escape an agreement to buy $3bn of stock from him and other early investors in the struggling co-working company.

A lawsuit filed by Mr Neumann accuses SoftBank and its Vision Fund of reneging on a promise to allow WeWork’s early backers and hundreds of employees to cash in some of their stock.

“Mr Neumann put his trust in [SoftBank and the Vision Fund] to be stewards of WeWork, which he — and thousands of others — had worked so hard to build,” the lawsuit says, claiming that he “upheld [his] end of the bargain” while the Japanese group did not.

The litigation by Mr Neumann marks the official breakdown of the relationship between the WeWork co-founder and Masayoshi Son, the SoftBank boss who had urged the younger man to think bigger — and who backed his ambitions by putting more than $10bn behind WeWork’s mission to transform the places where we work, live and study.

A $3bn share tender was agreed last year as part of the multibillion-dollar rescue package that SoftBank put in place as WeWork was on the brink of insolvency, which included up to $5.1bn in debt financing and the acceleration of a previously promised $1.5bn equity injection.

Mr Neumann’s lawsuit alleges that within two months of him ceding his voting control in exchange, SoftBank “was secretly taking actions to undermine” the agreement. These included putting pressure on investors in WeWork’s two joint ventures in Asia, where a planned roll-up was a prerequisite of the tender offer, it claims, and an attempt to change the sequence of investments agreed in the original deal.

“SoftBank will vigorously defend itself against these meritless claims,” said Rob Townsend, SoftBank’s chief legal officer. “Under the terms of our agreement, which Adam Neumann signed, SoftBank had no obligation to complete the tender offer in which Mr Neumann — the biggest beneficiary — sought to sell nearly $1bn in stock.”

Mr Neumann is seeking a motion to consolidate his lawsuit with one filed against SoftBank last month by a special committee of WeWork’s board, whose existence his filing cites as evidence of a “brazen” abuse of power by the Japanese group.

SoftBank has challenged the committee’s claim to speak for the interests of the company, noting that it is comprised of Bruce Dunlevie, a general partner of Benchmark, one of the early investors which stood to benefit from the tender offer, and Lew Frankfort, another longtime WeWork board member and investor.

Mr Son’s company has vowed to “vigorously” defend itself against the special committee’s lawsuit, calling it “a desperate and misguided attempt” to rewrite the tender agreement.

Mr Neumann’s lawsuit notes the fall in SoftBank’s share price since it agreed to rescue WeWork and the pressure it has faced from activist investors to cut its exposure to lossmaking young companies such as the office group, speculating that this prompted its change of heart on the tender.

The outlook for WeWork and its core co-working business model remains in question as employers face the prospect of having to enforce social distancing rules even after staff return to offices because of the coronavirus pandemic.

Mr Neumann, who has not spoken publicly for several months, is represented by Morris, Nichols, Arsht & Tunnell; Friedman Kaplan Seiler & Adelman; and Susman Godfrey.