The Weinstein Company sale falls apart again

Company in danger of going bankrupt

NEW YORK (CNNMoney) - The Weinstein Company is once again on the verge of bankruptcy.

Last week's tentative $500 million deal to sell most of the assets has been terminated, according to Maria Contreras-Sweet, the lead investor who was trying to get the deal done.

The investors apparently discovered that the studio was deeper in debt than previously disclosed.

Could the company find a new path out of its precarious financial straits? Well, Hollywood loves a happy ending, and if it's a surprise, all the better -- but this situation looks bleak.

A spokeswoman for the studio had no immediate comment on Tuesday. The board of directors has previously said that it would pursue a bankruptcy filing if a deal with Contreras-Sweet cannot be completed.

Long story short: The Weinstein Company has been looking for a buyer ever since the Harvey Weinstein harassment scandal paralyzed the studio last fall after news broke that he sexually harassed dozens of women over the course of three decades. Weinstein denied all allegations of non-consensual sex through a spokeswoman, but still, he stepped down from the board of the company that bears his name less than two weeks after the allegations came to light.

Then came the former head of the U.S. Small Business Administration Contreras-Sweet, who worked with Ron Burkle and other investors on a bid that appealed to the board.

The investors wanted to buy most of the company's assets and then launch a new company, billed as a pioneering woman-led studio.

At one point, a bankruptcy filing looked imminent. But talks continued behind the scenes. Last Thursday the board and the would-be buyers struck a preliminary $500 million deal with some help from New York A.G. Eric Schneiderman's office, which brought the two sides back to the table.

Then the due diligence process began in earnest. That's when something went wrong.

"After signing and entering into the confirmatory diligence phase, we have received disappointing information about the viability of completing this transaction. As a result, we have decided to terminate this transaction," Contreras-Sweet said in a Tuesday afternoon statement.

Two sources involved in the process said the "disappointing information" involved the company's debts.

"The buyers discovered undisclosed liabilities for the first time today," one of the sources said.

The other source said the buyers were surprised by "how enormous the debt load was."

It is unclear what the Weinstein Co. board will do next. With money running out, employees at the studio are fearing imminent layoffs.

It is possible that Contreras-Sweet's investor group will snap up some of the studio's assets through a bankruptcy auction.

"I believe that our vision to create a women-led film studio is still the correct course of action," she said in Tuesday's statement. "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."

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