The entertainment world is dramatically changing with two of Hollywood’s most historic titans – Paramount Skydance and Warner Bros. Discovery (WBD) – closing in on a historic $110.9 billion merger. This is the second horizontal merger of legacy media giants in recent history, and the all-cash definitive agreement shakes the foundation of the entertainment industry.
But as the acquisition moves into its final stages, a monumental legal battle is threatening to derail the blockbuster takeover.
1. How Paramount Beat Netflix in a High-Stakes Bidding War
At one point WBD was ready to do a deal with streaming giant Netflix, which had the blessing of the Warner Bros. board. That deal would have seen Warner Bros. spin off CNN and its linear cable assets into a standalone company.
Paramount Skydance, not willing to retreat, waged a relentless corporate fight, throwing out aggressive, unsolicited bids. The tipping point was when Netflix gave Paramount a seven-day contractual waiver to present a revised offer. Paramount seized the opportunity to propose a better cash offer of $31.00 per share. Netflix refused to meet the valuation, officially bowing out of the race and leading to Paramount’s record-smashing win.
2. The Creation of a New Media Empire
If the merger gets over the line it will create an entertainment behemoth never seen before, backed heavily by the Ellison family, RedBird Capital and a trio of Gulf sovereign wealth funds (from Saudi Arabia, the UAE and Qatar).
The combined company will possess an unmatched portfolio of intellectual property, media properties and news networks:
Iconic Franchises: Mission: Impossible, Top Gun and SpongeBob SquarePants will now live under the same corporate umbrella as Harry Potter, Game of Thrones and the DC Universe.
Streaming Monopolies: The tech stacks of Max (formerly HBO Max) and Paramount+ are merging to create a streaming entity that can aggressively challenge Netflix and Disney.
The News Network Fusion: For the first time in broadcast history, two major rival television news giants, CNN and CBS news, will be under one parent company.
3. THE THREAT IS REAL: 12 US States Join Coalition to Sue to Block Deal
While WBD shareholders overwhelmingly approved the merger and the U.S. Department of Justice’s Antitrust Division signed off on the deal, the merger has hit a severe roadblock.
A dozen U.S. state attorneys general, led by California Attorney General Rob Bonta, have sued in federal court to block the $110B deal pending a preliminary injunction.The illegal merger of these two entertainment behemoths would result in higher prices, lower quality and less content for film and television, harming movie theaters, basic cable distributors and ultimately audiences on every sofa.”
– California Attorney General Rob Bonta
The states argue the deal is illegal under Section 7 of the Clayton Antitrust Act because the combination would take more than 25 cents of every dollar earned by basic cable channels and wide-release theatrical movies in the U.S. Hollywood unions and thousands of high-profile creatives including actor Ben Stiller and director Sofia Coppola also have signed open letters in opposition to the deal over fears of massive consolidation in the industry.
4. The financial stakes and what comes next
The stakes could not be higher for the corporation. Paramount is eager to close the transaction, which under the terms of the merger requires Paramount to pay WBD shareholders a large “ticking fee” of $0.25 per share each financial quarter if the deal doesn’t close by September 30, or approximately $6.9 million per day in delay penalties.
Paramount has fought hard against the state-led lawsuits, calling them a “fundamentally flawed application of antitrust laws.” They say that blocking or slowing the deal will hurt entertainment workers and consumers and help “Big Tech” platforms that are still upending the traditional Hollywood ecosystem.
The Last Word
Regulators in China and the U.S. DOJ have signed off, but the merger’s fate now hinges on the outcome of U.S. state court hearings and pending regulatory decisions from the European Union. If Paramount survives the antitrust onslaught, Hollywood will never be the same.