After Friday’s delay in the Paramount-WBD antitrust lawsuit, shares of both media companies slid in after-hours trading, foes of the merger exulted and observers tried to process the latest twist in the merger saga.
California Attorney General Rob Bonta hailed the agreement, under which Paramount pledged not close the $110 billion deal before June 1, 2027, or a legal determination of the suit’s merits, whichever comes first. The pact is “great news for audiences, movie theaters, and the many people who write, build, and create the art, news, and entertainment so many of us enjoy,” he said in a statement. “We’re eager to continue to make our case in court and celebrate another tremendous win in our effort to ensure this unlawful merger never sees the light of day.”
During a press briefing on Zoom, activists who joined the fight led by the 12 state attorneys general and the Writers Guild of America adopted a pragmatic tone.
“The power of many can beat the power of money when we organize – and this is not a done deal,” said Anjuli Kronheim Katz, executive director of the Committee for the First Amendment. “We’re not also being overly presumptive that we’re going to block this merger. It’s not a full victory, but it is an important indication of the power that we’ve built and what’s possible when we organize people. There’s a lot more to do. This is going to be hard, but it is not hopeless.”
Peter Murrieta, secretary-treasurer of the WGA West, joined the briefing from Comic-Con in San Diego to decry the deal’s potential to “push down our compensation for writers” or cut the output of films and series. (Paramount has described the merger as “pro-Hollywood” and disputes the assertion that it will have a negative impact on workers.)
Financial Sector Reacts
Paramount stock touched a 52-week low on the news before closing at $8.21 and drifting down another three cents in after-hours trading. WBD shares fell almost 1% during the trading day before sagging a bit more after the session.
The financial sector was stunned by the development, which was announced with about an hour left in the trading day. Paul Nary, a management professor and M&A specialist at U. Penn’s Wharton School, posted on X that the situation will be a “more expensive adventure” given the delay. He noted the $7.2-million-per-day “ticking fee” Paramount has promised to pay WBD shareholders if the deal doesn’t close by September 30. A breakup fee of $7 billion will be owed to WBD if the deal is abandoned.
Paramount “clearly saw the writing on the wall” after the judge initially granted and then extended a temporary restraining order pausing the deal, Abiel Garcia, partner at Kesselman Brantly Stockinger, told Deadline. Standards for a TRO and a preliminary injunction – the stage that would have followed the TRO – are similar, he said, noting that the judge’s TRO order contained a few key footnotes working against Paramount. They included cautions that the David Ellison-led company could not address streaming efficiency as an argument in the case; and that monies due (the ticking fee) was not a reason to accelerate the proceedings.
Had the AGs been able to win a PI, “that’s a bad look” that would have further emboldened the states, said Garcia, who began his career at the California Department of Justice as a deputy attorney general. “I think they had to do this to try to keep themselves afloat and not lose control of the schedule.”
The AGs have said they wanted a trial date in the winter. People familiar with the case have told Paramount will likely propose a date in November.
Most experts anticipate that Paramount will appeal to the Ninth Circuit if it loses at trial, and would ultimately look to take the case to the Supreme Court. It’s not clear that the AGs would appeal.
The June 1 date in Friday’s agreement appears to reflect the fact that the WBD merger agreement technically expires on June 7 if the deal hasn’t closed. The parties would need a few days to figure that out.
Regardless of the exact timetable, the milestone effort to reshape Hollywood, a story that seemed to be reaching its end just two weeks ago will now have several more drama-filled chapters.
Girding For Battle
By skipping the preliminary injunction process, Paramount is aiming to re-orient their case as it proceeds to trial. “Paramount is saying that they have all this evidence that markets don’t work the way the AGs are saying … They’re going to try and move away from traditional markets, how things have been defined before. It’s not an easy thing to do, but it’s doable. Markets evolve and change,” Garcia said.
WGA leaders noted at Friday’s presser that they’ll use the time to continue to generate support, solicit testimony and further build the case.
The ticking fee and momentum from the lawsuit‘s early traction suggest “the states will likely be in no mood to settle, at least not early on, and at least not without major concessions,” U. Penn’s Nary observed.
While the frustrations of Ellison; his father, Larry Ellison, the Oracle billionaire and deal backer; and others in the Paramount camp have taken center stage in recent days, WBD also faces a difficult path. Already preparing for its fourth corporate ownership change in the past decade, employees at the company will experience confusion and inertia in the coming months. And don’t forget, for a while they believed they were being taken over by Netflix after the streaming giant sealed a deal last December, outdueling Comcast and Paramount in the initial bidding rounds.
The company is “stuck in limbo for now,” Nary wrote. It “can’t make major changes to position themselves for survival if they believe the deal will fail, and can’t start the integration process/restructuring with $PSKY. From my perspective, I think this means WBD business may suffer either way, making it even more difficult for them to go back to being a reasonably well-positioned standalone firm if the deal doesn’t close, and also making Paramount’s already tough job of integrating, cost-cutting, and making this deal work if and when they do close even more of an uphill battle.”
Now, a deal that was hurtling through the regulatory process at a remarkable pace, going from proposal to the verge of completion in about five months, has now entered into a period of stasis. Executives from both companies are set to report their quarterly earnings over the next couple of weeks, and will certainly encounter questions about having to revise their optimistic projections about wrapping up the deal over the summer.
“The deal may still close or it may not,” Forrester Research VP Mike Proulx told the Wall Street Journal. “What we know is that the path to either outcome just got longer, messier, and likely more expensive.”
