WeWork's future comes down to Masayoshi Son vs. Adam Neumann

Key Points
  • SoftBank founder and CEO Masayoshi Son is supporting the removal of Adam Neumann as WeWork's CEO
  • Why Son is turning on Neumann depends on whom you ask: Sources close to SoftBank indicate Neumann's refusal to listen to advice is the main reason, while those close to WeWork say it's about SoftBank's desire to keep WeWork private.
SoftBank's Masa Son wants WeWork's CEO out — Four experts on the company's future
SoftBank's Masa Son wants WeWork's CEO out—Four experts on the company's future

For years, SoftBank CEO Masayoshi Son has been WeWork CEO Adam Neumann's biggest champion, praising his drive to expand and eccentric personality.

"Masa turns to me and asks, 'In a fight, who wins — the smart guy or the crazy guy?'" Neumann said in an interview with Forbes in 2017. "I say, 'Crazy guy,' and he looks at me and says, 'You are correct, but you and [co-founder] Miguel [McKelvey] are not crazy enough.'"

Son, who has invested billions of dollars in WeWork, is now leading the brigade to remove Neumann because he has been too crazy, according to people familiar with Son's thinking.

SoftBank founder Masayoshi Son (L) and WeWork founder Adam Neumann.
Getty Images

The falling out between the two didn't happen overnight, said the people, who asked not to be named because the discussions between SoftBank and WeWork are private. SoftBank has been consistently frustrated with Neumann's tendency to brush off advice, from pushing forward with an IPO to using phrases in WeWork's S-1 such as "elevate the world's consciousness" — a phrase SoftBank urged Neumann to eliminate but to no avail, said two of the people. There are other instances of Neumann ignoring SoftBank, said the people, who declined to offer further details at this time.

The revelation that Neumann may have transported marijuana across international waters, as reported in The Wall Street Journal, also has contributed to Son moving against Neumann in recent days, said the people.

WeWork views Son's turn against Neumann in a more practical light, seeing the move as SoftBank's best chance at delaying an IPO, according to people familiar with the matter. SoftBank invested $2 billion in WeWork in January at a $47 billion valuation. Going public would force SoftBank to write down its investment, which could lead to "large volatility" in SoftBank's business in the near term, with operating profit taking a hit of 15% if WeWork's IPO were to be valued at $20 billion, according to analysts at research firm Bernstein.

Installing a new CEO in place of Neumann who would listen to Son could delay an IPO indefinitely. While WeWork has set up $6 billion in loans with J.P. Morgan and other banks as a condition of going public, the terms of the loan agreement can be modified, one of the people said. SoftBank could also invest privately in WeWork if it needs more capital, the person said. WeWork has said it plans to go public before the end of the year.

"WeWork should postpone its IPO indefinitely until it can restructure its governance," said Bill George, a former board member at Goldman Sachs, Exxon, Novartis and Target. "Adam Neumann should give up some control to return WeWork to a more normal governance structure, and likely this will mean a CEO change. He should listen to Masa Son, who is one of his major financiers and very sharp – and very powerful."

Still, SoftBank seemed on board with WeWork's plans to go public as recently as last week, when SoftBank planned to invest about $1 billion in WeWork stock to support a public offering, another person said. That suggests a change of heart happened recently, perhaps spurred by growing discontent among limited partners in the Vision Fund, such as Saudi Arabia's Public Investment Fund, which contributed $45 billion to the $100 billion Vision Fund.

While Son and Softbank President Ron Fisher have consistently pushed to invest in WeWork, many others with a voice within Softbank and its associated entities have viewed the company with more skepticism, two of the people said.

Some WeWork board members hope to gain more clarity on SoftBank's thinking at an upcoming board meeting, which hasn't been scheduled and won't happen on Monday, two of the people said. Neumann has allies on the board and has the right to remove the board in its entirety as a provision of his chairman status and majority voting shareholder.

Kulina: WeWork one of the "spectacular implosions we've seen in the last 10 years"
Kulina: WeWork one of the "spectacular implosions we've seen in the last 10 years"