A deal to sell the Weinstein Co. to an investor group led by billionaire Ron Burkle has collapsed, according to his partner, Maria Contreras-Sweet.
“We have received disappointing information about the viability of completing this transaction,” Contreras-Sweet said in a statement Tuesday. “As a result, we have decided to terminate this transaction.”
The failure of the deal likely means that the Weinstein Co. will be forced to file for bankruptcy protection in the coming days. The studio behind “The King’s Speech” and “The Artist” has been teetering on the brink of financial ruin after numerous allegations of sexual abuse and harassment allegations its co-founder Harvey Weinstein were made public in October.
In a memo to employees, chairman Bob Weinstein said he would explore options outside of bankruptcy. He also denied a report that the company would fail to make payroll.
“I’m sorry for the terrible news that just came out,” he wrote. “There was an article in Deadline saying payroll won’t be met — that is untrue. There are other options we are seeking outside of bankruptcy that may come to fruition. The board is continuing to pursue those options. I will update you on a more frequent basis if I can.”
Burkle and Contreras-Sweet announced last Thursday that they had agreed to a $500 million transaction with the Weinstein Co. board. But since then, the investors have uncovered new information about previously undisclosed liabilities, according to a source familiar with the transaction. Those liabilities included $27 million in profit participation and residuals, $20 million in accounts payable, and a $17 million commercial arbitration award. That brings the debt level to nearly $290 million, according to two individuals familiar with the deal.
Burkle and Contreras-Sweet had been told by the Weinstein Co. that their debt levels were in the $225 million range. The would-be buyers informed the indie studio’s leadership that they were pulling out of the pact on Tuesday.
In a public statement, the Weinstein Co. board blamed Contreras-Sweet and Burkle for the collapse of the agreement.
“The investors’ excuse that they learned new information about the Company’s financial condition is just that — an excuse,” the board said. “The Company has been transparent about its dire financial condition to the point of announcing its own LIKELY bankruptcy last week. We regret being correct that this buyer simply had no intention of following through on its promises. Nevertheless, this Board will not quit. We will continue to work tirelessly — as we have for months — to determine if there are any viable options outside of bankruptcy. In the meantime, we continue to pursue an orderly bankruptcy process to maximize the Company’s value.”
Burkle and the board have also sparred over the issue of interim payments to keep the company afloat while the sale was pending. That issue had caused the negotiations to fall apart on Feb. 25, after Burkle’s team balked at the board’s demand for $7 million in upfront cash. At a marathon 12-hour negotiation with New York Attorney General Eric Schneiderman last Thursday, Burkle instead agreed to fund the company’s operations week by week.
An initial payment — thought to be about $1.5 million — was due Tuesday. But the two sides continued to haggle over the exact dollar amount. They also involved Schneiderman’s office in the dispute, sources tell Variety.
In a statement, the attorney general’s office said its lawsuit against the Weinstein Company and co-founders Bob Weinstein and Harvey Weinstein “remains active” and said its investigation is ongoing.
“We’ll be disappointed if the parties cannot work out their differences and close the deal,” Schneiderman’s office added.
The deal was especially vulnerable to collapse because there is no breakup fee. In the early stages of the negotiations, the two sides had agreed to a $50 million breakup fee, which Burkle’s team would pay to the Weinstein Co. if the deal fell apart during the closing process. That would have provided a powerful incentive for the buyers to close.
But after Schneiderman’s office filed a discrimination lawsuit against the Weinstein Co. on Feb. 11, raising fresh allegations that the board had enabled Harvey Weinstein’s abuses, the terms changed. Burkle and his partner, Maria Contreras-Sweet, paused the negotiations, and when talks resumed, they said they were no longer willing to agree to a breakup fee.
It appears the Weinstein Co. now has little option except to declare bankruptcy. The company has been in a state of suspended animation since the Weinstein scandal broke last fall. Its ranks have dwindled from 150 employees last fall to less than 100 now.
In her statement, Contreras-Sweet said she and Burkle would consider buying Weinstein Co. assets out of bankruptcy.
“I believe that our vision to create a women-led film studio is still the correct course of action,” she said. “To that end, we will consider acquiring assets that may become available in the event of bankruptcy proceedings, as well as other opportunities that may become available in the entertainment industry.”
Burkle and Contreras-Sweet were set to inject $275 million in equity into the reorganized company, and had agreed assume $225 million in Weinstein Co. debts. The money remains in place, according to an insider, and is possible that the partners could use the money to either buy parts of the Weinstein Co. or buy other film and television companies. If the partners do buy Weinstein Co. assets, they will create some kind of compensation fund for alleged victims of Harvey Weinstein’s harassment and abuse.
Updated: 5:00 pm ET
Updated: 6:20 pm ET with a statement from Bob Weinstein.