Paramount Skydance is preparing for a protracted legal fight over its proposed $80 billion acquisition of Warner Bros. Discovery, as a coalition of 12 state attorneys general has filed a lawsuit seeking to block the deal.
A federal judge in San Francisco has already issued a temporary restraining order, which has been extended, preventing the transaction from closing for at least another month. Sources close to Paramount Skydance indicate that the company is bracing for the possibility of a preliminary injunction, which would further delay the merger pending a lengthy trial.
The legal challenge, led by California Attorney General Rob Bonta, argues that the merger would violate antitrust laws. The judge, in granting the temporary restraining order, noted that the combined entity would hold an anticipated 27% market share in wide-distribution theatrical releases, suggesting a potential violation of antitrust laws.
Paramount Skydance, led by CEO David Ellison and his father Larry Ellison, is reportedly ready to contest the legal challenges all the way to the Supreme Court if necessary. The company believes it has strong evidence to counter the antitrust claims, despite the legal hurdles. This approach reflects the Ellisons' history of overcoming adversity in business, including their acquisition of Paramount itself.
This legal opposition was anticipated by Paramount Skydance, with sources indicating they were aware that Democratic attorneys general might challenge the deal. The company's general counsel, Makan Delrahim, has reportedly been involved in planning for such a scenario.
If a preliminary injunction is issued, the deal's closure would be postponed until the trial concludes. This could result in significant financial obligations for Paramount Skydance, including quarterly "ticking fee" payments totaling $650 million each, as stipulated in their agreement. Larry Ellison's substantial personal wealth, estimated at $167 billion, provides the financial backing for such prolonged legal proceedings.
Analysts suggest that Paramount Skydance could opt out of the deal, but doing so would incur a $7 billion breakup fee and leave them with a smaller media company without the scale Warner Bros. Discovery would provide. The potential loss of Warner Bros. Discovery's assets, including its cable properties, streaming services, and studio, is a significant factor.
In contrast to the U.S. legal challenge, the European Union has already approved the merger. This has led to criticism of the California-led suit, with some suggesting it places the state's antitrust regulators to the left of their European counterparts.
Bonta's case contends that Warner Bros. Discovery, which was already undergoing downsizing due to market economics, would be strengthened by remaining separate. The argument posits that two smaller, independent entities would be more beneficial for Hollywood employment and consumer prices due to increased competition. Critics, however, deem this argument "absurd," pointing to Warner Bros.' precarious stock price before the acquisition talks and the intense competition in the entertainment market from platforms like YouTube and various streaming services.
The legal process is expected to be lengthy, with some projections suggesting resolution in 2027. The judge overseeing the case, Araceli Martinez-Olguin, was appointed during the Biden administration and is described as a "liberal activist appointee." The legal and political landscape surrounding the deal suggests a complex and potentially lengthy "long game" for Paramount Skydance.