WeWork takes Softbank to court for breach of investment contract

Co-working space provider WeWork has filed a lawsuit against Tokyo headquartered Softbank for not following the investment schedule as agreed between the two entities.

New York headquartered WeWork has filed the case before the Delaware Court of Chancery alleging that SoftBank has breached its obligations to infuse $3 billion under the ‘master transaction agreement’ (MTA). 

“SoftBank’s wrongful action constitutes both a breach of contract and a breach of fiduciary duty to WeWork’s minority stockholders, including hundreds of its current and former employees. The MTA was previously announced on October 22, 2019, and amended on December 27, 2019,” WeWork said in a press release.

The decision to move the court was taken by the special committee of the board of directors of WeWork’s holding company, The We Company. The special committee consists of two members Bruce Dunlevie, general partner of Benchmark Capital and Lew Frankfort, founder of luxury accessories maker Coach Inc, according to multiple media reports.  

As per the agreement, SoftBank Group had decided on a $9.5 billion rescue plan for WeWork in three tranches — $5 billion in new financing, a tender offer of up to $3 billion for existing shareholders and an existing $1.5 billion commitment into WeWork. 

Late last month, the lender did not go ahead with the $3 billion investment as the company faced lawsuits filed by its shareholders in California and also failed to roll-up the joint venture in China. 

WeWork, on the other hand, has alleged that SoftBank engaged in a parallel alternative transaction with a key minority investor in the joint venture and is now trying to pin the failure of the roll-up of the JV on WeWork. Also, the company has said that stockholder lawsuits are not a risk for WeWork’s operations and SoftBank was aware of the pending cases at the time of signing of the MTA.

WeWork also said that Softbank can not back down from the proposed investment on account of current global events, hinting at ongoing Covid-19 or Coronavirus pandemic.

Wilson Sonsini Goodrich & Rosati, is a legal advisor and Perella Weinberg Partners LP is the financial advisor to the Special Committee of the WeWork’s Board of Directors.

WeWork operates in India on a franchise basis, which is issued by Bengaluru-based real estate firm Embassy Group. WeWork started India operations in 2017 and operates about 57,000 desks in 34 locations across the National Capital Region (NCR), Mumbai, Bengaluru, Pune and Hyderabad. By October last year, Embassy Group infused $126 million into the franchise and had taken funding from ICICI Bank and Tata Capital.