Harvey Weinstein / the Weinstein Company – Chapter 11 Bankruptcy in the Offing As Sale Talks Fail

The Weinstein Company – Chapter 11 Bankruptcy in The Offing As Sale Talks Fail

Born under a bad sign, been down since I began to crawl

if it wasn’t for bad luck, I wouldn’t have no luck at all…

(“Born Under a Bad Sign” -Original Version, Albert King, 1967; covered by Cream, 1968)

Today, Albert King’s song might seem like the “anthem” of (former) movie mogul Harvey Weinstein, and, by extension, his former corporation The Weinstein Company LLC (more universally referred to, and known more simply as TWC).

According to online news / gossip source TMZ.com, The Weinstein Company – after months of turmoil, scandal, lawsuits, speculation, accusations, and rumors – took formal action to file for Chapter 11 Bankruptcy in Los Angeles, CA. The online source is quoted as saying, “It was almost inevitable… (TWC) has filed for bankruptcy after hemorrhaging assets and facing multiple lawsuits in the wake of the Harvey Weinstein scandal”.

Various forms of media were abuzz with speculation that TWC was on the verge of a bankruptcy filing. The rumors follow the collapse last weekend of negotiations for the sale of the company. Until late last week, TWC had been in sale talks with an investor group considering an offer of $500 million for the company.

In March and February, 2018, Maria Contreras-Sweetwas part of a consortium of investors attempting to purchase a controlling interest in TWC. Contreras-Sweet, a former head of the Small Business Administration (SBA) during the Obama presidency, teamed with Ron Burkle, a U.S. Billionaire with a present net worth estimated to be $2 billion.Burkle is listed as #633 on Forbes’ list of “The Richest People on the Planet 2014”. Burkle also has a close personal history and long-running ties to TWC co-founder Harvey Weinstein.

Harvey Weinstein, along with his TWC partner and younger brother Bob, were born (March, 1952, and October, 1954, respectively) in the Flushing section of the New York City borough of Queens. The brothers are of Jewish ancestry and second-generation grandchildren of Polish Immigrants. Their father Max was a diamond cutter, their mother Miriam a homemaker. Harvey and Bob grew up in the Electchester housing co-op and attended the nearby John Bowne High School. After completing High School, Harvey attended The State University of New York (SUNY) at Buffalo, graduating in 1973.

During most of the 1970’s, Harvey, along with his brother Bob and another partner named Corky Burger, owned an independent concert promotion company located in Buffalo, NY, Harvey and Corky Productions. Their company (later renamed Harvey, Corky & Tice Productions when legendary promotor Eddie Tice was added to the partnership in the late ‘70’s) was responsible for promoting and producing most of the major concerts in Buffalo throughout that decade.

After selling their interest in the Buffalo concert-promoting company in 1979, the Weinstein brothers co-founded Miramax Films(Miramax). The new company, named after their parents Miriam and Max, began in 1979 with the profits from their former business. Miramax started as a small independent film distribution company. It quickly became a leading independent film, motion picture distribution, and production company, primarily centered on the distribution of independent and foreign productions. The company’s first release was a music-oriented concert film, Paul McCartney’s Rockshow.

Between 1979 and 1993, Miramax was privately owned by the Weinstein brothers. During that period, Miramax scored significant success with such productions as: The Thin Blue Line; My Left Foot (Oscar nominated for Best Picture, 1989); Cinema Paradiso; Paris is Burning; The Crying Game (2nd Oscar nod for Best Picture, 1993); and, Madonna: Truth or Dare. Miramax also collaborated with Quentin Tarantino on a number of his epic productions, including Reservoir Dogs; Pulp Fiction; and, Jackie Brown.

Miramax is credited with being the driving force behind the “Indie” film revolution that overtook the industry during the decade of the ‘90’s and beyond. During a short period that began in 1991, the company produced or distributed seven movies that had box office grosses in excess of $100 million. Chicago, a later release, grossed more than $300 million worldwide.

In the fourteen years between 1979 and 1993, the Weinstein brothers took Miramax from a small, insignificant film distribution company to a powerhouse player in both distribution AND production – their success and growth, and growing reputation, drew the attention of THE powerhouse of film production at the time, The Walt Disney Company.

In June, 1993, the Disney Company paid Harvey and Bob Weinstein $60 million dollars for Miramax (other reports say the price was $80 million). The deal provided that the Weinstein brothers would continue to operate their former company as an independent subsidiary of the new parent company, albeit a “parent” that would exercise fairly strict control over what the Weinstein’s could release.

Conflict erupted with Disney executives when Harvey and Bob tried to get involved with two controversial films – Fahrenheit 9/11 and Dogma.

However, Disney’s financial clout, reputation, and history allowed Miramax to have a more stable and elastic budget. The subsidiary quickly moved beyond acquisitions and distribution into the area of major film productions. Bob Weinstein founded and operated a new Disney label, Dimension Films. that focused on and specialized in teen, horror, and other “genre” films. “Scream and “Scary Movie were two successful releases that grew into significant film “franchises” with multiple releases.

At the same time, Harvey Weinstein began teaming with several younger, innovative directors such as Quentin Tarantino, Gus Van Sant, and Robert Rodriguez. The combination – Bob’s focus on “genre” movies and Harvey’s concentration on larger, bigger budget productions – helped fuel fairly phenomenal and lucrative successes for Disney and the Weinstein brothers.

Despite successes that were mutually beneficial to the Weinstein brothers and The Disney Company, all was not “rosy” during the relationship. In fact, it was during the Miramax –Disney years when the clouded personality of Harvey Weinstein began to fully emerge, albeit “under the radar” of the public at large.

An early rift in the relationship occurred just two years after Disney acquired Miramax from the Weinstein’s. The cause was the prospect of Disney being associated for the first time in its long history with an NC-17 rating (formerly the “x” rating; no one under the age of 17 admitted). Studios are deathly afraid of such ratings because newspapers won’t advertise with them, and most theaters won’t show films that carry them.

First came the Miramax film, Priest, a controversial movie that explored clergy sexual misdeeds in the United Kingdom. The release of that film brought a nationwide boycott – orchestrated by the ultra-conservative Catholic League – of the Walt Disney Company. The executives at Disney, Co. headquarters in Burbank were both appalled and shaken.

Thereafter, the Weinstein’s next sought to release an even more controversial movie titled Kids, a film that dealt with the sex lives of promiscuous teenagers and the then-taboo subject of AIDS. While Miramax under the Weinstein’s was known for exploring offbeat subjects and a wide-range of provocative themes, the prospect of getting an NC-17 rating proved to be too much for the “suits” at Disney. Harvey Weinstein was ordered to find a pre-release buyer for the film (or, form a separate company unassociated with Disney to produce and release it) and reimburse the parent company the $3.5 million Miramax had paid to acquire it.

Harvey Weinstein wasn’t happy and he reportedly showed it in an explosive, expletive-laden phone call with Disney CEO Michael Eisner centered on the Kids movie and the ultimatums he was given about selling it pre-release and reimbursement of the money paid.

Eisner and Harvey Weinstein had a particularly contentious relationship in the later years, clashing frequently – some issues that exploded, often into headlines, were:

  • Casting of expensive stars in big budget productions
  • Movies that were costly to make but failed to “catch on” with moviegoers
  • Issues of creative control
  • Inadequate compensation (for the Weinstein brothers)
  • Continuing rancor over the movie Fahrenheit 9/11 (the brothers purchased the movie rights from Disney and released it through Lion’s Gate; it was received with high acclaim and became one of the highest-grossing releases of 2004)

The rift over Fahrenheit 9/11 was the beginning-of-the-end of the Weinstein’s tenure with Miramax. Fast forward to March, 2005, and the run of the Weinstein’s was over. In that month, Disney was facing a change at its top, replacing Michael Eisner with incoming CEO Robert Iger, so “change was in the air”.

The Disney board notified the Weinstein brothers that their contracts would not be renewed at the end of their upcoming term. Negotiations to end the relationship ensued, with some observers reporting “rancorous” dealings and others claiming that the split was amicable. In the end, the deal looked something like this:

  • Disney retained the Miramax name along with the subsidiary’s vast film library
  • Cash payment of $100 million (including salaries and bonuses owed) to the Weinstein brothers
  • Weinstein’s retained the Dimension Films property and certain titles under it
  • Weinstein’s agreed to continue as Co-chairs of Miramax through the end of their unrenewed contract period (September, 2005)

Looking back, Disney and the Weinstein’s could say that their business relationship had been a fairly phenomenal success in the 12 years that it existed. Ticket sales from Miramax productions exceed $4 billion… Miramax films garnered over 220 Oscar nominations (15 for Best Picture), with a total of 54 Oscars awarded (4 for Best Picture). Miramax led the “indie” revolution and helped launch The Walt Disney Company in a new direction while allowing it to maintain its traditional brand.

The Weinstein Company was launched in March, 2005, while the Weinstein brothers were still on the payroll with Miramax. From the outset, TWC “hit the ground running” by issuing five film releases within the first few months. Additionally, the nascent company soon struck distribution deals with MGM and Blockbuster, became co-producer along with Miramax of the TV reality show, Project Runway, and launched three new direct-to-video labels (The Miriam Collection, Kaleidoscope TWC, and Dimension Extreme). Then, the storm clouds began to gather…

In mid-2009, a financial restructuring of the company ensued. In July, 2009, the company began laying off employees and delaying the release dates of some of its projects. In January, 2010, more layoffs occurred, several films did not do well, and the Weinstein brother’s attempt to buy back Miramax from Disney ended in failure. TWC narrowly avoided bankruptcy toward the end of 2010 by selling its stake in the TWC film library to Goldman Sachs and Assured Guaranty. The years 2009 and 2010 were, in some respects, unsuccessful for TWC, but things began to turn around in early 2011.

In January, 2011, TWC purchased a 25% stake in Starz Media whose subsidiary, Anchor Bay Entertainment became distributor in the home-video market for all TWC films. In February, the Weinstein brothers were paid an additional $75 million by Disney in a deal that also saw Disney give up to TWC its 50% share of Project Runway and reduce its interest in four movies from 50% to 5%. The Weinstein’s were on a roll and recovering nicely from near bankruptcy just a year earlier.

Beginning in February, 2011, TWC started gathering honors and accolades at a rapid pace. A TWC-distributed film, The King’s Speech, won the Best Picture Oscar for 2011; in February, 2012, The Artist won the Best Actor (Jean Dujardin) award at the Cannes Film Festival, and followed up with four Academy Awards, including Best Picture, for the film. Between 2012 and late 2017, TWC continued to expand, grow and prosper.

It appeared at the time that the company and the Weinstein brothers faced a bright future in the years ahead. However, recently TWC has endured new hardships.

The TWC “explosion”(“implosion” may be a better term because it came from the inside… in the Executive Suite… centered directly on the office of CEO Harvey Weinstein),that resulted today in their filing of a Chapter 11 Bankruptcy petition, “went off” in late October, 2017. It was an explosion “heard ‘round the world” and one that triggered a cultural sea change across the nation.

On October 5, 2017, the New York Times reported that a multitude of women – including more than sixty in the film industry alone – had accused TWC Chairman Harvey Weinstein of sexual harassment, sexual assault, and rape. In quick succession on the following day, three TWC board members resigned and Weinstein announced that he was taking “…an indefinite leave of absence”. On October 7th, a fourth TWC board member resigned, and the company appeared to be in shambles.

On October 8th, the sex scandal fallout continued with the announced termination of Harvey Weinstein. In the days that followed, TWC announced that Weinstein would not be receiving any credit on upcoming TWC releases. At the same time, it was announced that “TWC is considering removing Weinstein’s name from the company” meaning that renaming and rebranding of the company had already become a likely option. On October 12th, a fifth TWC board member submitted his resignation amidst continuing allegations against Harvey Weinstein that were multiplying by the day.

Weinstein’s brother, Bob, dug in and fought back. On October 13th he refuted media reports that his brother’s“…sexual misconduct scandal had forced the company to consider a forced sale or to shut down operations entirely” and that such opinions were “inaccurate”. On the same day, Bob Weinstein released a statement that said, “…our banks, partners, and shareholders are fully supportive of our company and it is untrue that the company or board is exploring a sale or shut down of the company.” The statement added, “…business is continuing as usual as the company moves ahead.

It is noteworthy that Bob Weinstein’s statements were not supported by then-President and COO David Glasser or TWC’s two remaining board members.

Mid-October saw rather frenetic activity surrounding purported interest by a myriad of entertainment companies in acquiring The Weinstein Company. Colony Capital headed the list of suitors that also included: the rap artist Jay-Z; Yucaipa Companies (headed by Harvey’s billionaire friend, Ron Burkle); Paramount Pictures owner Viacom; Lionsgate; Metro-Goldwyn-Mayer (MGM); A&E Networks; Shamrock Holdings; Sony Pictures Television; and, a whole host of lesser players from the industry. A number of the interested companies had strong ties with the Weinstein brothers, Miramax, and TWC (i.e. MGM was the former U.S. distributor for TWC and A&E Networks is 50%-owned by Disney which had previously purchased Miramax from the Weinstein’s and employed them for 12 years).

It may seem somewhat surprising that between October, 2017, and late February, 2018, none of the speculation concerning TWC’s ultimate fate centered on reorganizing the company through Chapter 11 bankruptcy. Most all of the comments were directed toward ceasing operations altogether or selling the company to the highest bidder. A major problem was that none of the presumed “interested” buyers were, in fact, interested. The Colony Capital talks collapsed and came to naught in early November, 2017, less than a month after they had begun.

On the surface, TWC’s corporate toxicity seemed sudden and totally unexpected. Below the surface and hidden by seeming decades of cover up, intimidation, and bullying were the transgressions of that singular individual, Harvey Weinstein. Oft times, what lies beneath the surface of “business as usual” are problems that are volatile with the potential to erupt like a corporate Vesuvius. For Harvey Weinstein and TWC, HIS problems were hidden (somewhat, with many who surrounded him knowing that he was an “eruption in the making” at any given moment), monumental, and of his own making. In short, TWC was in the dark and fairly non-culpable as matters came to a head in late 2017.

In January, 2004, just a year before the Weinstein brothers left Miramax to form TWC, a revelatory book titled, Down and Dirty Pictures: Miramax, Sundance, and the Rise of Independent Film, by author Peter Biskind, was released by Simon & Schuster. The book was a portent of things to come for Harvey Weinstein and his soon-to-be-founded TWC.

The book fairly “ripped” Harvey Weinstein, Miramax, Sundance-founder Robert Redford, and the festival itself. Several quotes from the book set forth in a February, 2004, review provide a “window to the future” re: Harvey W.

A few are:

Anyone who even casually follows the movie business has

probably heard plenty about Harvey Weinstein the famously

temperamental head of Miramax, the company that… forever

changed the way independent films were made and marketed…

Through the years, reports have poured in about Weinstein’s

abuses: tantrums, assaults, shelving and re-cutting of films,

underhanded Oscar Campaigns, backdoor acquisitions,

disappearing net points, and so on…

And this:

Time and again, Biskind turns over rocks, discovering new

horrors under each production… (He)structures the book

around two pillars: Robert Redford, thereclusive founder of

the festival and Sundance Institute, andHarvey Weinstein,

the toothiest piranha in its annual feedingfrenzy…

Biskind paints Redford as a “…passive-aggressive control-freak whose middlebrow sensibilities have steered Sundance away from edgier material and turned it into the Hollywood hive that it is today.” Biskind treats Weinstein with even less respect and greater disdain, speaking of Harvey’s “…reign of terror…shoving matches…stars and directors reduced to tears…and movies butchered by post-production tinkering that earned Weinstein the nickname ‘Harvey Scissorhands’…”.

All of that negative information about Weinstein (from thirteen years ago and earlier) and, yet, nomentionhardlyanywhere about forced sex, sexual harassment, and allegations of rape that are now front and center as a primary underlying factor in the TWC “collapse” and resultant bankruptcy case.

The following excerpts from an online article by vice.com also shine a spotlight on Harvey Weinstein as a “monster”, yet, again, nothing – nothing – about sexual predation and all that it portends (or portended):

  • Working for Bob and Harvey is like being part of the mob, complete with tough-guy bosses from Queens often at each other’s throats…
  • Miramax ran on fear. They’re intimidating, they shout a lot, they foam at the mouth… When he (Harvey Weinstein) turns on you it’s with venom. And it’s personal…
  • “…’You’re a dildo! YOU are a dildo’. Say it, ‘I’m a dildo’… ‘I hate the sound of your breathing’… Every year at Miramax felt like a dog year, for mental distress and emotional cruelty. You have to be able to completely subordinate your own vision of right and wrong in order to work there.

A completely shitty place to work, yet, again, nothing about Harvey Weinstein’s actions and activities that today are placing his company into bankruptcy and threatening its very continued existence.

The year 1997 saw the United States Labor Department conducting a nearly year-long investigation into Miramax’s employment conditions. The following year, a group of thirty-five reluctant former-employees filed a $1.4 million class-action lawsuit for unpaid overtime. No employees who were then employed by Miramax signed on to the suit. One observer said at the time: “They intimidated everybody. None of the people who still worked there would sign up. They were convinced they would be fired, be blackballed, that terrible things could happen…”

Recall what was said in another context: “Working for Bob and Harvey was like being part of the mob…”; 1998 and that still seemed to be a truism (“…they intimidated everybody…”).

The class-action suit was settled out of court for an undisclosed amount.

In 1986, one solitary incident may have given a clue to the ultimate reason for Weinstein’s fall late last year. At that time, he hired a new female assistant with whom he became immediately enamored. His actions were over-the-top according to some witnesses at the time. His public and demonstrative displays of affection started out “innocently” enough – sending roses to the assistant’s desk – but soon escalated to more inappropriate gestures within and without the office. Finally, colleagues confronted Harvey, saying, “This has to stop. You can’t do this, it’s an office, not your personal sexual playground.”

The inappropriate behavior ceased when Weinstein promoted the assistant to head of Miramax’s children’s division… and…married her!

That was then… this is now. Fast forward to today…

Before we delved into a short bio of Harvey Weinstein, his past, and an abbreviated history of his career with Harvey and Corky Productions, Miramax and Miramax/Disney, and The Weinstein Company, we left off with what appeared to be a promising “out” for TWC. That was the nearly consummated buyout of the company by a consortium of investors headed by a former head of the SBA.

The proposed $500 million deal included an offer to pay approximately $275 million for the company and an assumption-of-debt provision valued at $225 million. Under the leadership of Maria Contreras-Sweet, the Weinstein Company would have been renamed with an all-new board of directors. Sources have said that a majority of the new board were to have been women. That proviso was in recognition of the central role played by the Weinstein sex scandal that triggered his and the company’s downfall. One component that was intended under the new company was the creation of a $40 million + “compensation fund” designed to compensate the vast majority of Harvey Weinstein’s accusers and victims.

At the time, the deal looked promising, especially with the involvement of Billionaire Ron Burkle and the financial contributions he was expected to make. Burkle is described as an “…American investor and philanthropist” who co-founded The Yucaipa Companies, LLC a private equity and venture capital company.Burkle was a longtime friend of the Weinstein brothers who had invested in many of their films and projects over the years. He was even involved in backing the brothers’ 2010 bid to buy back their former company, Miramax, from Disney.

Did savvy investors, at the time, view the Contreras Sweet – Burkle prospect as a promising outcome? Certainly, given the dire straits that the Weinstein’s and the company were in late in 2017, and the prior collapse of earlier negotiations by others.

Was the bid seen, at the time, as a likely outcome? Perhaps, had other forces and events not intervened earlier this month.

In the midst of the Contreras-Sweet / TWC negotiations, the office of New York Attorney General Eric Schneiderman set off a bomb that put the kibosh on any prospective sale of the company at the time. The “bomb” came in the form of a lawsuit filed by the A.G. that alleges civil rights violations in the workplace at The Weinstein Company.

The New York civil rights suit was filed in mid-February against Harvey Weinstein, Bob Weinstein, and the entire Weinstein Company. The suit alleges that they violated both the state’s civil rights laws and New York City’s human rights laws. The suit states that, “…Harvey Weinstein persistently sexually harassed female employees at The Weinstein Company by personally creating a hostile work environment and demanding quid pro quo sexual favors for continued employment and career advancement.”

The New York lawsuit continues: “Weinstein used his position at The Weinstein Company, as well as female employees and company resources, to serve his sexual interests with other women seeking employment or business opportunities with the company”. Additionally, the Schneiderman suit accuses TWC’s Human Resources Department of being “…essentially non-existent” and further claiming that Bob Weinstein and TWC’s board of directors “…were complicit in Harvey Weinstein’s (scandal) by ignoring credible evidence presented to them time and again”.

The NY lawsuit is seeking upwards of $350,000 for each violation – a sum that could prove to be financially staggering given the number of accusers that have come forward. Additionally, the suit seeks to have any women bound by non-disclosure agreements with Harvey Weinstein and/or the company released from their terms.

At the time of the filing of Schneiderman’s Civil Rights lawsuit, TWC was operating with a new board and leadership. They were frightened by the prospect of the litigation and took steps to “circle the wagons” so to speak. That resulted in the board backing away from the ContrerasSweet – Burkle negotiations. The collapse in those negotiations compelled the board to “…file for bankruptcy” after firing off an “exculpatory” letter to the interested investors.

TWC’s board said in the letter:

Based on the events of the past week, we must conclude that your plan to

buy this company was illusory and would only leave this company hobbling

toward its demise to the detriment of all constituents…

It is not clear if the “events of the past week” allude to the NY lawsuit, but that is the likely connection. The Board’s letter continued:

We and our advisers have worked tirelessly to finalize an agreement to

present to the attorney general for his approval… while acceding to virtually

every demand you imposed. We waited patiently for you to deliver the terms

you represented would save this company from certain bankruptcy. The draft

you returned presents no viable option for a sale…”.

At the time, the company was in dire straits, trying to secure interim funding to keep its operations running and pay a staff that numbered upwards of one hundred-thirty employees. The board was looking for an investor bail out to secure such funding as is made clear in that same letter:

We made clear that what the company needed… was interim funding to run the

business and maintain our employees… There is no provision for necessary

interim funding to ensure your future employees were paid; instead, you

increased the liabilities left behind for the company, charting a financial path

that will fail…”.

To an outside observer, the board’s closing position, as evinced by their letter to the ContrerasSweet group, is untenable and a mere excuse for their own failures along the way. As one commentator recently noted: “Since the scandal, the company has become a Hollywood pariah with major commissions from companies including Apple having been pulled.”

At the end of the day (at least that day and for the time being), The Weinstein Company was apparently left with but one alternative – Chapter 11 bankruptcy. Having entered bankruptcy, future prospective buyers will be protected from inheriting the company’s legal liabilities – liabilities which could be huge in light of the NY Attorney General’s lawsuit and the likelihood of many more lawsuits to come. That is powerful incentive for bidders to work through a Chapter 11 reorganization plan to make a purchase that makes sense, at least to prospective new owners. It’s an even more powerful incentive for The Weinstein Company to fully engage with prospective buyers to attain the best possible sale they can get given the totality of their problems and their present standing in the community.

Photo credit: The Weinstein Company