Paramount Skydance Corp. NASDAQ:PSKY, a Hollywood film, television and streaming company, is facing a major legal challenge to its proposed $110 billion acquisition of Warner Bros. Discovery Inc. NASDAQ:WBD, a media company with film studios, cable channels and the HBO Max streaming service. California and 11 other states filed an antitrust lawsuit in federal court on Monday seeking to block the transaction, arguing that the combination could lead to higher prices, fewer viewing choices and weaker competition across movies and television. The legal action represents the deal's largest regulatory obstacle after the Justice Department declined to challenge the acquisition in June and stated that it was unlikely to damage competition. Paramount disputed the states' allegations, describing the lawsuit as incorrect on both the facts and the law, while maintaining that the merger could support greater investment in premium programming, theatrical releases and creative talent.
The states alleged that the combined business would control 27% of the market for films receiving wide theatrical releases and more than 30% of anticipated large-budget blockbusters. The lawsuit also stated that the transaction would leave four companies controlling more than 90% of the wide-release film market, including the merged Paramount-Warner Bros. business, Walt Disney Co. NYSE:DIS, a major entertainment company, Universal, a major film studio, and Sony Pictures, a film and television studio. Regulators also raised concerns about the market for television channels licensed to cable and satellite providers, as Paramount and Warner Bros. would combine the second- and third-largest businesses in that segment. The merged company would operate more than 50 channels covering areas including news, sports, entertainment and family programming, giving it an estimated 27% share based on viewership.
Investors may now focus on the possibility that the lawsuit could prevent Paramount from completing the acquisition before the end of September, when delay-related payments to Warner Bros. shareholders are scheduled to begin. The states have asked the companies to postpone closing until a federal court reviews the legality of the merger, a process that could take several months, and they may seek a court order if Paramount and Warner Bros. decline to remain separate. Paramount has already said it will not close the transaction before July 22, when European regulators are expected to announce their decision, adding another important date to the deal's timeline. The proposed acquisition would place CBS, CNN, Paramount+ and HBO Max under the leadership of Paramount chief David Ellison, while continued legal and political opposition may increase uncertainty surrounding the timing and completion of the transaction.