WeWork's financing lifeline hinges on SoftBank talks

NEW YORK, Oct 08 (Reuters): WeWork is locked in negotiations this week with its largest shareholder, Softbank Group Corp, over a new $1 billion investment to enable the shared office space company to go through a major restructuring, according to sources familiar with discussions.

If the talks are successful, WeWork, which had to abandon an initial public offering last week because of investor concerns about how it was valued and its business model, will seek to negotiate a $3 billion debt deal with JPMorgan Chase & Co, the sources said.

SoftBank founder and CEO Masayoshi Son publicly backed WeWork in an interview with Nikkei Business magazine this week, saying in 10 years the company would be "making substantial profits."

WeWork and SoftBank did not immediately respond to requests to comment.

However, SoftBank and its Vision Fund, which controls about 29 per cent of WeWork after investing or committing to invest $10.65 billion, are facing unusual crosscurrents as they seek a new deal.

SoftBank wants to renegotiate a $1.5 billion warrant deal, which was agreed in January based on WeWork being valued at around $47 billion, before providing the additional $1 billion, one of the sources said. WeWork's valuation estimates had fallen to as low as $10 billion to $12 billion around the time that it decided to abandon the IPO, Reuters reported last month.

Normally, SoftBank would be expected to seek as low of a valuation as possible for the renegotiated and new investments so that it can pick up a bigger stake.

But securities analysts say that if it invests in WeWork at a valuation below about $24 billion-$26 billion, which is the estimated basis for its entire stake, then SoftBank and its Vision Fund could suffer on-paper losses. Those would be large if the valuation were closer to $10 billion.

The success of the talks with both SoftBank and Wall Street is essential if WeWork is going to survive in anything like its current form.

The company was already expected to pare back its ambitions significantly and to cut several thousand jobs, according to a source familiar with the matter.

WeWork lost $1.9 billion in 2018 and burned through $2.36 billion in cash in the first half of this year, and it could run out of money in the second quarter of 2020 at its current burn rate, according to an analysis last week by securities house Sanford C Bernstein & Co.

WeWork hopes to complete the talks with SoftBank and JP Morgan as early as next week, the sources said, cautioning the plans are subject to change and timetable may still shift.