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TOKYO — SoftBank Group of Japan on Wednesday said it took a multibillion-dollar write-down related to its stakes in WeWork and Uber, two flashy technology companies that have become the poster children for the excesses of start-up culture.
SoftBank Group is the world’s largest tech investor, and it has used its $100 billion Vision Fund — backed with its own money as well as major stakes from Saudi Arabia’s Public Investment Fund and others — to become a kingmaker in the space by placing major bets on companies it believes have the potential to dominate entire industries.
But the company, and its chief executive, Masayoshi Son, have come under increasing pressure to rein in their stable of potential unicorns following the spectacular implosion of the initial public offering of WeWork, the tech-adjacent American real estate company, in late September.
On Wednesday, SoftBank said its profits for the six months that ended in September totaled 421 billion yen, or nearly $3.9 billion, about half the level of the same period a year ago. The figures imply SoftBank lost more than $6.4 billion in the most recent three-month period.
SoftBank cited a nearly $4.6 billion write-down in the value of its investment in WeWork, plus write-downs in other investments, including Uber, the American ride-hailing company.
SoftBank also owns Yahoo Japan, the chip design firm ARM, and the phone carrier Sprint in the United States.
But WeWork’s fall had the biggest impact on the Japanese company’s results. WeWork’s $47 billion valuation plummeted virtually overnight after its effort to sell shares to the public revealed deep governance issues, including questionable financial arrangements involving Adam Neumann, its leader and founder. SoftBank now values WeWork at $7.8 billion. Mr. Neumann resigned as the company’s chief executive at the end of September.
SoftBank Group bet big on Mr. Neumann’s vision even as cracks had begun to appear. While its partners in Vision Fund balked at throwing more money at the loss-making WeWork, Mr. Son’s company continued pouring funds into the venture, eventually investing $10.5 billion in the tech firm ahead of its planned offering.
The meltdown has forced SoftBank Group to pump an additional $9.5 billion into the company, leaving it with an 80 percent stake but no majority voting rights. Mr. Neumann walked away with more than a billion-dollar payout.
The WeWork fiasco has increased scrutiny of Mr. Son’s role in shaping the Vision Fund’s investment portfolio. The notoriously exuberant founder is famous for making snap decisions about companies based on intuition as much as overall strategy.
The missteps at WeWork have shaken investors’ confidence in Mr. Son, according to Mitsunobu Tsuruo, an analyst at Citigroup Global Markets Japan.
“He’s supposed to be a good judge for picking winning entrepreneurs, but Mr. Neumann was not the case,” he said, adding that Mr. Son would need to convince his shareholders that their interests will not be compromised by Softbank’s exposure to WeWork.
In some cases, Mr. Son’s bets have paid off spectacularly. An early gamble on Alibaba, the Chinese e-commerce company, grew to more than $100 billion. But other investments have not fared as well. Large stakes in Uber and Slack have begun to look more nearsighted than visionary as their share prices have fallen in the months following their public offerings.
WeWork’s collapse comes as Mr. Son is trying to raise funds for a second $100 billion-plus fund aimed at making investments in artificial intelligence, which SoftBank announced in July. The company planned to finance the fund with $38 billion of its own money and said it expected backing from some of the tech industry’s top names, including Apple and Microsoft, as well as several major Japanese financial institutions.
At the time, it seemed that money would likely finance a strategy similar to the one Mr. Son has pursued with the first fund: pumping so much money into his chosen companies that they overwhelm their rivals with their sheer financial bulk, allowing them to establish near monopolies in key industries.
Critics of the strategy say it has undermined financial discipline at the companies that benefit from the fund’s largess, and the experience of companies like Uber — which spent billions on buying market share but has yet to turn a profit — has given investors second thoughts about that model.
Stephen Easterbrook was fired as CEO of McDonald's after his relationship with an employee was found to violate company policy. Richard Drew/AP hide caption
Former McDonald's CEO Stephen Easterbrook is getting an exit package of almost $42 million after his relationship with an employee was found to violate company policy. The size of his compensation puts a new focus on the widening gap between the pay at the top and the bottom of the corporate ladder.
According to an analysis by executive compensation experts Equilar, Easterbrook's exit package totals $41.8 million, which includes six months of severance pay, shares he can cash out in the future and other equity. And that sum is in addition to $23.8 million in stock options that Easterbrook can exercise now.
"Wow, he is walking away with a lot of money," says Cornell Law School professor Stewart Schwab, an expert on employment law. "And it comes out as part of the story of just, wow, [the] 1% gets a lot more money than the rest of the workers in this economy."
It's relatively unusual for a CEO to receive a severance package after being fired. But McDonald's board of directors determined his firing to not be for cause — a threshold that varies by company. And litigation in a protracted dispute can be tricky and expensive.
Writing to employees earlier this week, Easterbrook said: "I engaged in a recent consensual relationship with an employee, which violated McDonald's policy. This was a mistake." No further details were disclosed, but McDonald's current policy prohibits employees who "have a direct or indirect reporting relationship" from dating or having a sexual relationship.
McDonald's latest disclosures show that in 2018 Easterbrook made $15.9 million. That's 2,124 times more than a McDonald's median employee — a part-time crew member working in Hungary. According to Glassdoor, a U.S. crew member at McDonald's makes an average of $9 an hour.
McDonald's did not respond to NPR's inquiries, including about median salary in the U.S.
"A big story of the income inequality and explanation for it is that top executives, and in particular the CEO, does have the exploding pay compared to the rank and file," Schwab says. "And this is an example of that."
Easterbrook joined McDonald's in 2015, and his tenure was praised by company watchers. The fast-food chain's stock price hit historic highs under his efforts to revamp both the restaurants and the menu.
But Easterbrook also presided over the company as it faced allegations of rampant sexual harassment of female employees by male coworkers and managers. (To be clear, his departure does not involve harassment allegations.)
In May, workers in 13 U.S. cities staged protests against low pay and the company's handling of alleged sexual harassment. In recent years, dozens of McDonald's workers filed sexual harassment complaints, alleging everything from lewd comments and groping to retaliation.
"What we see all the time from minimum-wage workers is that once you complain, retaliation is common," says Sharyn Tejani, director of the Time's Up Legal Defense Fund that works with victims who allege sexual harassment.
"That takes the form of losing shifts, losing your job, not being able to stay at your job, being disciplined. And ... they don't have any cushion," she says. "And when you compare that to what happens to somebody like the CEO, it's clear that there's a structural problem here."
Following worker complaints, McDonald's announced in August it would introduce a harassment training program for U.S. workers. The program, which began in October, trains restaurant supervisors and crew on how to create a safe workplace and diffuse difficult situations.
Earlier in the year, McDonald's also made an unexpected commitment to no longer lobby against minimum-wage hikes on federal, state or local levels. In mid-2015, McDonald's added at least $1 an hour more to the local minimum wage to employees of the restaurants owned by the corporation. The majority of McDonald's locations are owned by franchisees.
In 2015, research by the UC Berkeley Center for Labor Research and Education found that more than half of fast-food workers rely on public assistance programs like food stamps. The research did not specifically focus on McDonald's.
NPR's Peter Talbot contributed to this report.
McDonald's stock tumbled to seven-month lows after CEO Steve Easterbrook was ousted for having a consensual relationship with an employee.
He led the company fore more than four years.
Five experts weigh in on what comes next for the fast-food giant.
Jeffrey Sonnenfeld, senior associate dean at Yale, says new CEO Chris Kempczinski's credentials are impressive.
"There is great continuity. The successor has been very well battled tested. In his short career he's been at Procter & Gamble, he has been at Boston Consulting Group, he's been at Kraft, very senior roles. At PepsiCo, he soared. He was head of North American beverages — the uncarbonated beverages. It did a great job by all accounts at PepsiCo."
RJ Hottovy, consumer equity strategist at Morningstar, says the new CEO makes for an easy transition.
"I'm pretty comfortable with Kempczinski as the new CEO. He co-authored a lot of the velocity initiatives that Steve Easterbrook put in place. He was a big proponent of the fresh beef initiative the company rolled out. Honestly, he did a lot behind the scenes with delivering digital so I think we'll see a lot of continuation of Steve's initiatives with Chris at the helm."
Jim Cramer, host of CNBC's "Mad Money," says there are questions around timing.
"The stock was down pretty badly on Friday and I'd like to know a little more about when and how long they've known this. This is one where it's pretty obvious that the stock has been under a lot of pressure. Some of it was because of Wendy's breakfast, some of it was because it missed [estimates] domestically and some of it was because of this. I don't know for sure."
Will Slabaugh, managing director of Stephens, says the outgoing CEO deserves due credit for the turnaround.
"Whenever Steve came in, McDonald's was ... somewhat stagnant around the world and so in the past, you know, five years, we've seen record results internationally — the UK, France, the U.S. had a tremendous turnaround. So, investors, franchisees have made a lot of money with Steve at the helm."
David Palmer, senior managing director at Evercore ISI, says McDonald's needs to step it up to compete.
"You have rivals showing that you can do some things — you can grow breakfast certainly, there's the chicken wars as we all know, and the fact that there's been some demand creation happening in the industry. The industry is doing over 4% comps right now so very strong results. McDonald's has outperformed generally but that that has compressed lately."
Former Ted Cruz campaign pollster Chris Wilson, Stanford School of Business lecturer Dave Dodson and Politico congressional reporter Melanie Zanona discuss the firing of McDonald’s CEO Steve Easterbrook and Chief People Officer David Fairhurst over Easterbrook’s romantic relationship with a subordinate.
Ousted McDonald’s CEO Stephen Easterbrook has stepped down as a member of Walmart's board of directors.
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According to a Securities and Exchange Commission filing, Easterbrook informed the company Monday of his decision to resign effective immediately after joining the board in 2018.
Walmart has not immediately responded to FOX Business' request for comment.
Steve Easterbook (Credit: McDonald's)
Easterbrook is one of a dozen board members currently listed on the company's website who ensure "Walmart operates with integrity and accountability."
He was fired from McDonald's after violating company policy by engaging in a consensual relationship with an employee, the company said.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| MCD | MCDONALD'S CORP. | 188.66 | -5.28 | -2.72% |
MCDONALD’S FIRES CEO FOR INAPPROPRIATE RELATIONSHIP WITH EMPLOYEE
The fast-food giant said Easterbrook demonstrated poor judgment, and that McDonald’s forbids managers from having romantic relationships with direct or indirect subordinates.
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In an email to employees, Easterbrook acknowledged he had a relationship with an employee and said it was a mistake.
According to Monday's filing, his decision to resign from Walmart was not due to "any disagreement with the company on any matter relating to its operations, policies or practice."
The Associated Press contributed to this report.
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Masayoshi Son, CEO of Japanese mega-investor SoftBank, told colleagues that "we created a monster" in WeWork after investing billions into the firm only to later bail it out, the Financial Times reported.
SoftBank last month bailed out the cash-strapped real estate firm to the tune of just over $8 billion, with an accelerated payment of $1.5 billion just to ensure the company didn't run out of money. SoftBank being one of the company's main backers, is now under scrutiny for the way it invests.
The FT also separately reported, citing unnamed sources, that SoftBank will on Wednesday impose stricter governance standards on dual-class share structures after the WeWork fiasco — an about-face for Son who the newspaper says is "known as a risk-addicted dealmaker."
SoftBank is expected to take a multibillion dollar writedown on WeWork, the FT said.
Prior to the bailout, SoftBank had invested more than $10 billion in WeWork and the office-sharing firm was valued at $47 billion at its peak. The firm planned to IPO and backers dreamed of a valuation of more than $100 billion.
But intense scrutiny over WeWork's governance and business model resulted in the firm indefinitely delaying its IPO, and its idiosyncratic cofounder Adam Neumann stepping down as CEO in September, followed by the bail out last month.
Son, the Financial Times cited a person close to him as saying, has been shaken by the ordeal. The Japanese magnate has said little publicly about WeWork since the funding deal, although he has said that he is "embarrassed" in general by SoftBank's missteps.
"We created a monster," Son told colleagues, according to the paper. And in reference to Neumann: "We gave him all the capital."
This, along with Uber, which has lost more than a quarter in value since going public, and according to CNBC cost the Japanese firm $600 million so far, is leading to investors worrying about the real value of SoftBank's ventures.
"If SoftBank says this is the value, how much of that should you believe?" the FT cited Kirk Boodry, a technology analyst at Redex Holdings who publishes on Smartkarma, a research platform, as saying.
WeWork and SoftBank did not immediately respond to a Business Insider request for comment.
Read the Financial Times' report here.
U.S. stock index futures were higher Tuesday morning after Wall Street posted a record close on Monday.
At around 5 a.m. ET, Dow futures rose 78 points and indicated a positive open of more than 62 points, while futures on the S&P 500 and Nasdaq were also higher.
Strong earnings, more promising economic data and optimism over a possible U.S.-China trade deal saw the Dow Jones Industrial Average join the S&P 500 and Nasdaq Composite at record highs on Monday.
The Dow's year-to-date gain now stands at around 18%, while the S&P 500 is up more than 22% and the Nasdaq more than 27% so far this year.
Market focus remains attuned to trade discussions, with Reuters reporting on Monday that China is pushing U.S. President Donald Trump to remove more tariffs imposed in September as part of the much touted "phase one" trade deal between the two nations.
Traders will also have eyes on a raft of economic data Tuesday morning. September balance of trade, import and export figures are due for release at 9:30 a.m. ET before November Redbook data at 9:55 a.m. ET.
Composite and services PMI (purchasing managers' index) numbers for October are expected at 10:45 a.m. ET, followed by non-manufacturing PMI and a host of other non-manufacturing figures at 11: a.m. ET.
On the earnings front, Allergan and Becton Dickinson are set to report before the bell on Tuesday.
- CNBC's Fred Imbert contributed to this report.
