SoftBank is letting internet satellite company OneWeb file for bankruptcy, a sign Masayoshi Son has learned lessons from WeWork

Key Points
  • Satellite broadband provider OneWeb plans to file for bankruptcy on Friday. OneWeb had raised $3.4 billion in capital, with SoftBank as its largest shareholder.
  • SoftBank held recent discussions to bail out OneWeb but ultimately decided it couldn't afford to spend billions more as it looks to shore up its balance sheet.
  • The decision to let OneWeb file for bankruptcy, despite already having invested $2 billion in the company, marks a shift in strategy for SoftBank.
Masayoshi Son speaks during a joint announcement with Toyota Motor to make new venture to develop mobility services in Tokyo in October 2018.
Alessandro Di Ciommo | NurPhoto | Getty Images

SoftBank has decided to let satellite internet provider OneWeb file for bankruptcy Friday rather than pump billions of dollars into the start-up to save it, according to people familiar with the matter.

SoftBank, which has already invested $2 billion into OneWeb, was in talks to provide more capital to the satellite operator but ultimately backed down after making the decision it needs to save capital instead of spending more, said the people, who asked not to be named because the discussions were private. OneWeb plans to file for Chapter 11 bankruptcy on Friday when markets close in New York at 4 p.m. ET, one of the people said.

Spokespeople for SoftBank and OneWeb declined to comment.

OneWeb was in the early stages of launching its own global satellite internet constellation, which would have competed directly with the network SpaceX is building called Starlink. While SoftBank is its largest investor, OneWeb had raised about $3.4 billion in funding with investors including Qualcomm, Airbus, Virgin Group, Coca-Cola, Maxar Technologies, Hughes Communications and Intelsat. All 74 of the satellites OneWeb put in orbit so far are operating as expected.

CEO Adrian Steckel told CNBC in a February interview that the company "is always raising" money.

"We're constantly raising capital," Steckel said, just after the company's second launch. "We're not being public about what we're raising. When the time comes we'll make an announcement."

The Financial Times first reported that OneWeb would file for bankruptcy.

SpaceX President and COO Gwynne Shotwell knocked OneWeb in candid comments last October, made to a crowd of investors at the Metropolitan Opera House in New York City. She claimed Starlink was well ahead in the new internet space race, saying "we have far more capacity per satellite than our competitors."

"Our competitors are largely these new entrants to the market. OneWeb? We are 17 times better per bit," Shotwell said.

The SpaceX leader didn't stop at a comparison, giving the opera house full of investors an ominous warning about backing OneWeb. "If you're thinking about investing in OneWeb, I would recommend strongly against it. They fooled some people who are going to be pretty disappointed in the near term," Shotwell said.

SpaceX has likewise been steadily raising funds, including $500 million in a round this year. SpaceX founder Elon Musk said in an interview earlier in March that there are "zero" similar satellite efforts "that didn't go bankrupt," referring to companies that fell short of building networks in the early 2000s. 

"We just want to be in the 'not bankrupt' category, that's our goal," Musk added.

SoftBank cuts bait

The decision dovetails two other SoftBank decisions this month: backing away from a $3 billion WeWork tender offer and selling up to $41 billion in assets, likely including some of its Alibaba shares, to shore up its balance sheet. 

Cutting bait with OneWeb, which failed to merge with Intelsat in 2017 and has unsuccessfully searched for new mergers ever since, is also a distinct counterexample to WeWork, which SoftBank bailed out in October instead of letting the company run out of cash. 

SoftBank has morphed from a Japanese and American telecommunications company, owning wireless networks in Japan and the U.S. (more than 80% of Sprint) to a sprawling technology holding company, led by its $100 billion mid-to-late-stage venture capital fund called the Vision Fund.

The moves to stop spending come as coronavirus quarantines threaten to wreak havoc on revenue for many of the SoftBank Vision Fund's largest investments, including Uber, WeWork, Grab, Didi Chuxing and Ola. SoftBank's profit in its last two quarterly earnings was completely wiped out from Vision Fund losses. The next two quarters almost certainly won't be pretty either. 

SoftBank CEO Masayoshi Son's reputation since the founding of the Vision Fund about three years ago has been to push his investments to spend aggressively. He once told WeWork founder Adam Neumann that he wasn't "crazy enough" with his expansion ideas.

But SoftBank has drastically altered that strategy this year to ensure the company is in position to weather a global downturn. Vision Fund head Rajeev Misra told CNBC earlier this month he planned on dozens of the fund's portfolio companies going public in the next 18 to 24 months. Those comments were made just before the huge market sell-off of the past three weeks, which have added significant doubt to when an IPO window will reopen. In the meantime, many private companies may be counting on SoftBank for additional funding to get them through a rocky first and second quarter.

It all adds up to SoftBank having to make some difficult funding decisions, including allowing OneWeb to file for Chapter 11 bankruptcy later today, putting about 500 employees at risk of losing their jobs, three of the people said. OneWeb had aimed to use satellite technology to provide rural and remote regions with broadband access that couldn't be reached by wireless networks.

WATCH: SoftBank Vision Fund chief Rajeev Misra speaks out

SoftBank Vision Fund chief Rajeev Misra speaks out