On October 22, 2019, The We Company (“WeWork”), SoftBank Group Corp. (“SBG”), SoftBank Vision Fund (AIV M1) L.P. (“Vision Fund”, and together with SBG, “SoftBank”) and certain other parties entered into a Master Transaction Agreement (the “MTA”), as amended on December 27, 2019. The MTA included a series of transactions, including a tender offer, pursuant to which SoftBank would purchase up to $3 billion worth of WeWork stock (the “Tender Offer”) subject to the satisfaction of certain conditions to closing. The MTA also granted SoftBank a number of rights that provided SoftBank with voting control of WeWork, including the right for SoftBank to designate at least half of WeWork’s board as of October 30, 2019 and a proxy over all shares held by a WeWork co-founder. While these provisions were effective just days after the MTA was signed, the tender offer was not expected to close until April 1, 2020.

Although often seen in these types of agreements, the MTA does not include a provision stating that if a “material adverse effect” occurs after signing and before closing, SoftBank would have the right to terminate the MTA. This differentiates this case from a number of recent cases related to COVID-19 related terminations of transactions which have been filed to date which focus on an analysis of whether or not COVID-19 and its impacts constitutes a material adverse effect giving the buyer the contractual right to terminate the agreement and not consummate the closing.

One condition precedent to SoftBank’s obligation to close the tender offer was the roll-up of WeWork’s Chinese joint venture. Despite SoftBank’s covenants in the MTA to use reasonable best efforts to effectuate the roll-up, WeWork alleged that SoftBank took deliberate actions to prevent the roll-up from occurring. Additionally, since SoftBank has control of WeWork, the lawsuit also claims that SoftBank violated its fiduciary duties to WeWork’s minority stockholders as a result of such actions.

In light of the COVID-19 crisis, WeWork sought to renegotiate certain of its lease obligations. SoftBank took the position that such actions could trigger a failure of a closing condition and would not waive such closing condition, despite WeWork believing that a waiver was not necessary. On April 1, 2020, SoftBank provided formal notice that it was terminating the tender offer due to conditions to closing that had not been satisfied or had failed. Specifically, SoftBank publicly announced the following conditions being unfulfilled:

• The failure to obtain the necessary antitrust approvals by April 1, 2020;
• The failure to sign and close the roll up of the China joint venture by April 1, 2020;
• The failure to close the roll up of the Asia (ex-China and ex-Japan) joint venture by April 1, 2020;
• The existence of multiple, new and significant pending criminal and civil investigations that have begun since the MTA was signed in October 2019, in which authorities have requested information regarding, among other things, WeWork’s financing activities, communications with investors, business dealings with Adam Neumann, operations and financial condition; and
• The existence of multiple new actions by governments around the world related to COVID-19, imposing restrictions against WeWork and its operations.

WeWork’s lawsuit claims that other than the regulatory approvals condition, which is subject to extension, the other conditions are either not required or were not met due to the actions of SoftBank. WeWork’s lawsuit seeks a declaration that all conditions to closing the Tender Offer, other than regulatory approval, were satisfied or waived (or capable of being satisfied or waived) by April 1, 2020, and specific performance requiring SoftBank to complete the tender offer in accordance with the MTA upon satisfaction of the regulatory approval condition.

It is difficult to tell if this lawsuit would have occurred notwithstanding the COVID-19 pandemic, but practitioners will undoubtedly follow this case to learn how the court will analyze the issues.

Full length complaint is available here.