November 12, 2019

Breakingviews: WeWork pulls $26 bln telco deal into its vortex

by Breakingviews.

The destructive force of hurricanes is measured on a scale from one to five. If the corporate world had an equivalent, WeWork would be approaching category six. The troubled office-sharing firm is now pulling a $26 billion U.S. telecom deal into its vortex.

SoftBank Group, which last month put up nearly $10 billion to rescue WeWork parent The We Company after its failed initial public offering, booted co-founder Adam Neumann out the door of the corner office. T-Mobile US Chief Executive John Legere is one of the candidates to replace him, according to the Wall Street Journal. The trouble is, he’s trying to close a deal with another SoftBank-backed company, Sprint.

SoftBank Chief Operating Officer Marcelo Claure is now WeWork’s executive chairman. He serves in the same role at Sprint and was its CEO when he and Legere announced the merger in April 2018. SoftBank, led by Masayoshi Son, owns roughly 80% of both WeWork and Sprint, though it isn’t required to consolidate the former because it doesn’t have voting control.

While the merger of America’s No. 3 and No. 4 mobile carriers has cleared two major federal regulators, several state attorneys general still want to block it. A trial is scheduled to start in December. Meanwhile the two companies blew past their merger backstop date on Nov. 1, potentially putting everything, including price, back up for negotiation. With Legere across the table from Claure in that context, it would be odd if he is also seriously discussing a new job.

Moreover, despite the WeWork maelstrom, SoftBank needs Sprint off its hands – and off its balance sheet. The carrier has nearly $40 billion of debt, half as much again as the market value of its equity. If the merger were to founder, it’s unclear whether Sprint would survive.

Legere is a colorful executive who put the $70 billion T-Mobile US on the map after a failed merger with AT&T handed him a break fee worth $6 billion. He might be a good choice to fix the much smaller WeWork. Yet there’s no certainty The We Company will make it even with Legere at the helm. Risking his early exit from T-Mobile could leave Son with double trouble.

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