Paramount Skydance Corp. NASDAQ:PSKY, a Hollywood studio and streaming company, is facing a potentially expensive legal setback in its proposed $110 billion takeover of Warner Bros. Discovery Inc. NASDAQ:WBD, a media group that owns HBO Max, CNN and major film and television franchises. A federal judge on Monday granted a two-week pause requested by California and 11 other states, saying the transaction likely violates antitrust law. The companies had hoped to complete the deal as soon as Wednesday, when European regulators are expected to approve it. However, US District Judge Araceli Martinez-Olguin will hold another hearing in Oakland, California, in early August to determine whether the acquisition should remain suspended until a full trial. The states are seeking an April trial next year, which could leave Paramount facing months of uncertainty.
The financial pressure could increase quickly if the deal remains delayed. Paramount must pay Warner Bros. shareholders approximately $7 million for every day the transaction remains unfinished after the end of September, meaning an April trial could potentially push additional costs above $1 billion. The company may also owe Warner Bros. shareholders $7 billion if regulators ultimately block the acquisition, while the merger agreement requires Paramount to continue defending the deal until June 2027. Paramount is expected to appeal if the judge extends the pause, although a ruling may not arrive until the end of the year or later. Media analyst Craig Huber said the delay is unfavorable for both companies and could be particularly difficult for Paramount because of the financial burden. The Writers Guild of America is also challenging the transaction, arguing that it may reduce competition in film and television writing.
California and the other states argue that the combined company would control more than 27% of widely released theatrical films, over 30% of expected big-budget blockbusters and 34% of cable television viewing. They also claim that only four companies would control more than 90% of the identified theatrical market after the merger, including the new Paramount-Warner entity, Walt Disney Co. NYSE:DIS, Universal and Sony Pictures Entertainment NYSE:SONY. Paramount argues that the combination would create stronger competition against Netflix Inc., a streaming entertainment company, Apple Inc. NASDAQ:AAPL, a consumer technology company, and Alphabet Inc.'s NASDAQ:GOOG YouTube video platform. The company has proposed commitments including releasing 30 films annually and increasing television production, while California Attorney General Rob Bonta has indicated that he prefers structural remedies such as asset sales. For investors, the legal challenge could delay Paramount's expected $6 billion in annual cost savings, postpone the proposed combination of Paramount+ and HBO Max, and increase concerns about financing at a company already carrying debt.