Paramount-Warner Bros. Merger Hits Legal Roadblock as Judge Raises Antitrust Concerns

A US federal judge has temporarily halted Paramount Skydance Corp.’s proposed $110 billion takeover of Warner Bros. Discovery Inc., saying the merger could potentially violate antitrust laws.

US District Judge Araceli Martínez-Olguín in Oakland, California, on Monday ordered the companies to delay completion of the deal for 14 days. Paramount and Warner Bros. had been hoping to close the transaction as early as July 22.

California and 11 other states filed a lawsuit on July 13 seeking to block the Hollywood mega-merger. The states argue that combining two of the five largest film studios would reduce competition in film production and cable television distribution.

Paramount said it would continue to “vigorously defend” the transaction.

“We are confident the evidence will demonstrate that the state attorneys general’s antitrust arguments are without merit, as their alleged markets and claims of anticompetitive effects have no basis in modern market realities,” the company said in a statement. “This merger is lawful, pro-competitive, and will benefit consumers, creators, workers and the entertainment industry.”

The judge has scheduled a hearing for August 3 to decide whether the temporary block should be extended. The court will then consider whether the merger should remain on hold until a full trial determines whether the transaction breaches federal antitrust laws.

Paramount had been close to completing the acquisition after receiving approval from the US Department of Justice. European regulators were also expected to clear the deal on July 22, subject to limited concessions.

However, the delay creates significant financial pressure for Paramount. For every day beyond September, the company could be required to pay Warner Bros. shareholders millions of dollars in “ticking fees”. If the court ultimately rejects the merger, Paramount could face a $7 billion termination fee, in addition to the $2.8 billion it paid to Netflix Inc. to withdraw from the bidding process.

Paramount Chief Executive Officer David Ellison has argued that the merger would strengthen the company’s streaming ambitions by combining Paramount+ and HBO Max. Warner Bros.’ major franchises, including Harry Potter, Batman and The Lord of the Rings, were expected to provide additional content for the streaming platforms. Warner’s cable networks, including CNN, HGTV and Discovery Channel, would also become part of the expanded entertainment group.

California has requested a trial date in April 2027. Paramount, however, is seeking a decision on the preliminary injunction before September 30, when the daily payments to Warner Bros. shareholders are expected to begin.

In her ruling, Judge Martínez-Olguín said the states had demonstrated that “serious questions going to the merits remain” in their challenge to the merger.

“This is a critical first win in our case to ensure this mega-merger never sees the light of day,” California Attorney General Rob Bonta said in a statement. He argued that history showed the risks of excessive concentration of market power, including fewer opportunities, reduced competition and lower-quality services.

Shares of Paramount fell as much as 2.2% following the ruling and were down 1.2% at 3.47pm in New York. Warner Bros. shares dropped 3.7% to $25.87.

The states’ lawsuit argues that the merged company would control about 27% of the market for films receiving wide theatrical releases. They also claim the combined entity would control more than 30% of major blockbuster releases — defined as films with large production budgets and broad cinema distribution.

If completed, the merger would leave only four major players controlling more than 90% of the wide-release theatrical distribution market: the new Paramount-Warner Bros. entity, The Walt Disney Company, Universal Pictures and Sony Pictures Entertainment.

“Plaintiffs present compelling evidence that the combined firm resulting from the transaction will possess substantial market share in the wide-release theatrical distribution market,” Judge Martínez-Olguín wrote in her 10-page order. “On this combined firm market share alone, the Court is persuaded that it can presume the proposed merger is likely to violate antitrust laws.”

Under the merger agreement, Paramount has until June 4, 2027, to complete the acquisition. However, it must begin paying Warner Bros. shareholders a daily fee of $7 million from September 30 until the transaction closes.

Paramount has maintained that the merger would help it compete more effectively with technology giants such as Amazon and Netflix in the rapidly changing streaming market. The company has also promised to release at least 30 films in cinemas annually — a commitment the states have challenged as insufficient to address competition concerns.

 
For any enquiries or information, contact ask@tlr.ae or call us on +971 52 644 3004. Follow The Law Reporters on WhatsApp Channels.