- The news that SoftBank will give Adam Neumann close to $1.7 billion as part of a package to leave WeWork’s board and give up his voting power sent reverberations through the world of tech and finance Tuesday morning.
- Experts largely agree that SoftBank made the right move by separating Neumann from WeWork, but many bowled over by the astronomical value of Neumann’s golden parachute.
- Legal experts said a shareholder lawsuit is unlikely, but that shareholders have good reason to be upset by the deal.
- Meanwhile, outside experts said the episode tarnishes the reputation of SoftBank and its billionaire CEO Masayoshi Son.
- Click here for more WeWork coverage.
Japanese investor Softbank will reportedly give 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 Tuesday morning, a move that sent reverberations through the world of tech and finance.
In the wake of the news, five experts, including corporate law professors, analysts, and tech executives, spoke to Business Insider about their reactions to SoftBank’s decision.
While experts largely agree that Softbank made the right move by taking control of WeWork away from Neumann, they were astounded by the size of the golden parachute Neumann received.
“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 IPO failed and Neumann stepped down as CEO last month. WeWork’s board was reportedly also weighing a buyout from JP Morgan this week, Business Insider reported.
SoftBank’s buyout values the company at $8 billion, down from the $47 billion valuation it gave the company in August. As part of the deal, Neumann is expected to sell $1 billion in stock to SoftBank and receive $500 million in credit as well as a $185 million “consulting fee,” according to the Journal.
A spokesperson for WeWork was not immediately available to comment.
Here are the key takeaways from experts who spoke to Business Insider about the deal.
Experts think Softbank was right to take WeWork away from Neumann, but were surprised by how much money Neumann got from the deal
Separating Neumann from the future of WeWork is 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, CEO of AArete, a global consulting firm. “Any time 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 30-40 days should feel fortunate.”
The sheer amount of money Softbank is reportedly giving Neumann struck multiple experts as surprising.
“I think anything over a dollar was more than they needed to pay. 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,” Schiffer said.
Nir Kossovsky, the CEO of Steel City Re, a risk management firm, said he believes severing ties with Neumann was the right move for the future of WeWork, but that the size of Neumann’s “golden parachute” could reflect poorly on SoftBank’s reputation.
“WeWork and SoftBank and perhaps even JP Morgan 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 UConn Law School specializing in corporate finance, said WeWork is 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 doesn’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 agreed that shareholders have good reason to be upset at the deal
Myers noted that WeWork’s S-1 filing claimed 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. If you think there’s a problem with Adam Neumann, why didn’t you do this before?” he said.
Korsmo predicted that SoftBank could face shareholder ire. SoftBank has sunk more than $10 billion into WeWork already.
“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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