A federal judge has temporarily paused Paramount Skydance Corp.'s NASDAQ:PSKY proposed $110 billion takeover of Warner Bros. Discovery Inc. NASDAQ:WBD, with the court order potentially delaying one of Hollywood's largest planned mergers. Paramount Skydance and Warner Bros. Discovery, two major Hollywood studios, had hoped to complete the transaction as early as July 22. US District Judge Araceli Martinez-Olguin ordered the companies on Monday to hold off on closing the deal for 14 days and scheduled an Aug. 3 hearing to consider whether the restriction should remain in place indefinitely.
The decision follows a July 13 lawsuit filed by California and 11 other states seeking to block the merger over concerns about competition in film and cable television distribution. The states argue that combining two of the five largest studios could reduce competition across the entertainment market. The lawsuit claims the merged company would control 27% of the market for films receiving wide theatrical releases and more than 30% of anticipated blockbuster films with large production budgets. Judge Martinez-Olguin said the states had demonstrated that serious questions remained regarding the merits of their challenge, suggesting the transaction could face a longer legal review before it is allowed to proceed.
The states also claim that only four groups would control more than 90% of the blockbuster market following the merger: the combined Paramount-Warner Bros. company and rival film businesses Walt Disney Co., Universal and Sony Pictures Entertainment. Investors may view the temporary pause as an increase in regulatory and execution uncertainty, particularly because Paramount must begin paying Warner Bros. Discovery a daily fee of $7 million from Sept. 30 until the transaction closes. However, Paramount still has until June 4, 2027, to complete the acquisition under the merger agreement, potentially giving the companies additional time to address the legal challenge.