A group of U.S. states could take legal action as early as next week to block Paramount Inc.’s $110 billion acquisition of Warner Bros. Discovery, two people familiar with the matter told Reuters. The move opens a new front against a deal that federal regulators have already approved.
See also: Warner Bros. Discovery: Is Netflix pulling out of the deal?
The threat comes just weeks after the Justice Department approved the merger without conditions, and could further delay Hollywood’s biggest consolidation in years. The states are concerned that the combination would hurt competition, according to a Reuters report by Dawn Chmielewski and Jody Godoy. The sources did not specify what kind of competition the officials are concerned about.
Advocacy groups and some state regulators have warned that subscription prices for streaming services could rise and that the merged company could cut jobs and offer a more limited range of movies, news and other content. Those concerns echo objections that actors, writers and theater owners have voiced since the acquisition was announced, with theater owners in particular arguing that a combined studio could approve fewer films.
The deal will merge two of Hollywood's big four studios, and its scale is part of what has caught the attention of regulators. Under the agreed-upon terms, Paramount will pay $31.00 per share in cash for Warner Bros. Discovery, a price that values the target at about $110 billion including debt.
California has taken the lead. Attorney General Rob Bonta is investigating whether the deal violates U.S. antitrust laws, and in early June, Reuters reported that California, New York and other states were preparing a joint lawsuit. The state action reflects a broader shift, with attorneys general stepping up their scrutiny of large mergers as federal antitrust regulators take a more business-friendly stance.
See also: Apple interested in buying Warner Bros.'s movie library
A legal challenge would impose real costs on Paramount, which is expected to take on about $80 billion in debt once the deal closes. Any delay would only add to that burden.
CEO David Ellison, son of Oracle co-founder Larry Ellison, has already agreed to pay Warner Bros. Discovery shareholders a “delay fee” of 25 cents per share if the deal doesn’t close by October, which works out to about $650 million in cash each quarter. The clause gives both sides a strong incentive to complete the merger quickly.
That deal has moved quickly. Paramount Skydance, led by Ellison, prevailed in a bidding war for Warner Bros. Discovery after Netflix pulled out, and the streaming rival later authorized a $25 billion stock buyback as it redefined its strategy.
The federal approval came last month, when the Justice Department wrapped up an eight-month review and concluded that the merger “is not likely to harm competition or American consumers.” State attorneys general can still take legal action to block a deal even after Washington approves it, and they have become bolder in doing so.
Other officials have also moved. Oregon’s attorney general has requested a 60-day delay and asked a judge to compel Paramount to comply with a records request, while in Britain, the culture minister has said she is “considering intervening” in the acquisition. If the multi-state lawsuit is filed next week, it would set up a legal battle that could push the shutdown beyond October and into the time window where the delay fee applies.
See also: Netflix modifies offer for Warner Bros. Discovery
A federal judge will ultimately decide whether to grant injunctions to block the merger while the case is reviewed, and states have won such battles in the past even after Washington has approved the deal.
