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WeWork Rebrands Itself as SoftBank Commits Smaller Investment

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(Bloomberg) -- WeWork Cos. is getting a lot less cash from SoftBank than it initially sought, falling victim to market turmoil that’s slashed the value of technology bellwethers and left the office-space upstart with far less power to weather a slump in lease prices across almost all of its markets.

SoftBank Group Corp. is investing an additional $2 billion in the real estate and co-working startup, according to a statement from WeWork Tuesday. Over the next 15 months, the Japanese conglomerate plans to invest $1 billion in primary capital and another $1 billion toward buying shares from investors and employees, WeWork said. That comes on top of the more than $8 billion SoftBank has already invested, but it’s a serious step back from the plan floated late last year for it to potentially spend $16 billion on a controlling stake.  The funding values WeWork at $47 billion, WeWork said in a statement.

 WeWork has been mostly expanding at breakneck speed and hasn’t yet experienced an economic downturn that economists are predicting in the next year or two. But there are cracks in the foundation. For one thing, WeWork told FastCompany that leasing prices in all but two cities it operates in are declining. Recent declines in tech stocks -- particularly SoftBank’s shares, which are down about 20 percent in the last month -- played a role in the decision to reduce the deal’s scope, according to a person familiar with the discussions.

Sepearately the company is starting to face pushback by landlords and real estate brokers as its expansion encroaches on their turf and the startup may eventually find itself shut out of access to some buildings, Bloomberg has reported. In the first half of 2018 WeWork lost $723 million on $764 million in sales.

But WeWork , which is the biggest private occupier of offices in Manhattan, is plowing ahead. It announced Tuesday that it would be rebranding itself as The We Company, with three distinct business lines: WeWork, its main office space-rental arm; WeLive, which currently operates two apartment buildings with communal design; and WeGrow, which runs an elementary school in New York City. The switch is not a legal name change, the company said, nor will executive roles move around as a result. But the change aims to lay groundwork for making those three parts of the business more distinct in the future, potentially allowing for investors to focus on one instead of all three.

SoftBank has invested or committed to invest more than $10 billion into WeWork since 2017, using a variety of financial structures and deals including convertible debt and warrants. The Japanese giant once considered using money from its $93 billion Vision Fund, which is in part backed by the Saudi government, to buy a majority stake in the startup. But Tuesday’s investment comes from SoftBank Group Corp. directly.

WeWork’s bonds bounced back after the news about the investment. Its 7.875 percent notes due 2025 traded up about 3.6 cents on the dollar to around 90 cents, the biggest gain since the bonds were sold in April, according to Trace bond price data. 

--With assistance from Claire Boston.

To contact the editor responsible for this story: Anne VanderMey at avandermey@bloomberg.net

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