Film studio Weinstein Co. is headed for Chapter 11 protection after a sale effort out of court collapsed in the wake of a lawsuit from New York's attorney general.
According to a Sunday, Feb. 25, letter from the company's board of representatives to Maria Contreras-Sweet and Ron Burkle, the leaders of a group that had been in talks to acquire the New York film and TV production company, Weinstein Co. now will pursue "the board's only viable option to maximize the company's remaining value: an orderly bankruptcy process."
A petition had not been filed in the most likely destinations of the Southern District of New York or Delaware as of Monday morning.
A representative for Moelis & Co. LLC, which is running the sale process for Weinstein Co., declined comment. A representative for O'Melveny & Myers LLP, its reported legal counsel, did not respond to a request for comment.
Addressing the group's actions since a Feb. 21 meeting with New York Attorney General Eric T. Schneiderman, the board said it concluded the consortium's offer "was illusory and would only leave this company hobbling toward its demise to the detriment of all constituents. ... Despite your previous statements, it is simply impossible to avoid the conclusion that you have no intention to sign an agreement -- much less to close one -- and no desire to save valuable assets and jobs."
Contreras-Sweet and Burkle did not return requests for comment. Loeb & Loeb LLP, reportedly counsel to the Contreras-Sweet group, and Roy Salter of FTI Consulting Inc., its reported financial adviser, could not be reached for comment.
Variety previously reported that a group led by Contreras-Sweet, former administrator of the U.S. Small Business Administration, was to pay $500 million for Weinstein Co. The industry publication said Burkle, head of private equity firm Yucaipa Cos. LLC, was poised to own 20% of the new company.
The offer, according to Variety, was to include the assumption of $225 million in debt. Unsecured creditors were to receive $125 million of the $275 million in equity, and $20 million to $30 million was to go to a settlement fund for victims. Some $100 million was to fund the new company, and current equity holders were to be wiped out.
The sale originally was set to close on Feb. 11, but Schneiderman's suit that day shook up the negotiations. The action in the Supreme Court of the State of New York charged the company; ousted co-CEO and co-chairman Harvey Weinstein; and his brother, Robert, also co-CEO and co-chairman with maintaining "a years-long gender-based hostile work environment, a pattern of quid pro quo sexual harassment and routine misuse of corporate resources for unlawful ends."
Notably, the lawsuit charged Bob Weinstein and his company's management and directors with "failing to investigate or stop" "repeated and persistent unlawful conduct" despite the repeated presentation of credible evidence of sexual harassment by Harvey Weinstein. By using nondisclosure agreements to resolve allegations of misconduct, Schneiderman alleged, Weinstein Co. and Bob Weinstein enabled his brother's conduct to continue "far beyond" when it should have been stopped.
"Any sale of the Weinstein Company must ensure that victims will be compensated, employees will be protected going forward and that neither perpetrators nor enablers will be unjustly enriched," Schneiderman said in a statement. The attorney general said the investigation remained ongoing but that he filed the suit on belief the sale would leave victims without a sufficient compensation fund and "would allow the perpetrators or enablers of the misconduct to see a windfall."
Schneiderman subsequently called the involvement of any current management in the new company unacceptable in a press conference on Feb. 12. Then Weinstein president David Glasser reportedly had been set to be CEO under the Contreras-Sweet deal, but the company's board voted to fire him on Feb. 16. Glasser subsequently has been reported to be preparing a wrongful termination suit seeking $85 million in damages.
Weinstein Co. was established in 2005 by Harvey and Bob Weinstein after the pair left Miramax Films, which they also co-founded. The film studio has produced high-grossing and critically acclaimed movies including "Django Unchained," "The King's Speech," "Silver Linings Playbook" and "Inglourious Basterds."
On Oct. 5, The New York Times published a report asserting that Weinstein had for decades sexually harassed and assaulted women that worked for him and then paid off the ones that came forward afterward. The article detailed the accounts of eight women, including actress Ashley Judd.
Following the publication of the article and another piece by Ronan Farrow in The New Yorker, and as the stories of more women surfaced, Weinstein Co. fired its namesake founder. But the action doesn't protect the company from liability, as many -- like Schneiderman -- have alleged it was complicit in covering up his behavior.
Weinstein has said that most of the allegations against him are false and that "there certainly was no criminality."