12 US states sue to block Paramount’s $110B Warner Bros. Discovery deal

A group of 12 state attorneys general filed a lawsuit Monday challenging Paramount Skydance’s
proposed acquisition of Warner Bros. Discovery
.

The lawsuit, which came after weeks of speculation on if and when it would be filed, seeks to block the merger on antitrust concerns. CNBC’s David Faber reported earlier in the day that the lawsuit was expected to come on Monday.

The merger deal would combine two storied film studios — Paramount and Warner Bros. — as well as streaming platforms Paramount+ and HBO Max. Paramount CEO David Ellison has previously said the streaming services would become one following the transaction.

It would also mean the formation of the largest portfolio of TV networks in the U.S., bringing together Paramount’s broadcast network CBS and pay TV channels like MTV and BET with WBD’s CNN, TNT and others.

Led by California Attorney General Rob Bonta, the lawsuit, which was filed in the U.S. District Court for the Northern District of California, is also brought forth by attorneys general of Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington.

“The unlawful merger of these two entertainment behemoths would lead to higher prices, lower quality, and less content for film and television, harming movie theaters, basic cable distributors, and ultimately, audiences on every sofa and movie theater seat in the U.S.,” Bonta said in a release.

In a lengthy statement released on Monday, a Paramount spokesperson called the lawsuit a “misrepresentation of competition in the entertainment industry today,” adding that it plans to “vigorously defend the transaction and demonstrate that this challenge is inconsistent with sound competition policy and the competitive realities of the media marketplace.”

“Delaying this transaction will only harm entertainment workers who have already suffered over recent years as technology has disrupted their livelihood and cost California tens of thousands of entertainment jobs,” Paramount’s statement continued.

The lawsuit filed Monday raised concerns about the size of the combined company, adding that the merged entity would control nearly one-third of films and nearly a third of basic cable TV programming.

The attorneys general asked Warner Bros. and Paramount not to close the merger until after the judicial process concludes and threatened to file a temporary restraining order if they didn’t comply.

On Monday, Bonta held a news conference in front of the Hollywood sign in Los Angeles reiterating the points made in the lawsuit.

“This merger would snuff out competition, drive up prices, diminish content quality, and produce fewer movies and shows each year,” Bonta said during the event. “We have antitrust laws and merger controls for a reason, because competition is the lifeblood of a healthy and vibrant economy.”

Paramount countered in Monday’s statement, saying that the merger would “create a stronger, well-capitalized, creative-first media company that is better positioned to compete with companies like Netflix that have come to dominate the industry for audiences, premium content, and creative talent. Put simply, any attempt to block this transaction undermines the very principles antitrust law is designed to promote: more competition, more choice for consumers, and more opportunities for creators and workers.”

The merger won approval from WBD shareholders in April, and Ellison said on a recent earnings call that it was on track to close by September.

Paramount could face additional costs if closing the deal were to be delayed. As part of the proposed merger, Paramount has agreed to pay a so-called ticking fee, which kicks in if the closing goes past Sept. 30. Paramount set the fee at an additional 25 cents paid to WBD shareholders per quarter until closing.

The fee would equal about $650 million in cash value per quarter for every quarter the deal is not closed.

Hollywood has previously expressed concerns about the combination, citing the likelihood of fewer film releases and the potential for job losses in the industry. Ellison has promised that once combined the film studios would put out a slate of 30 movies per year and has said he’s committed to protecting jobs.

Following the lawsuit filing on Monday, TV and film writers’ union The Writers Guild of America, and Cinema United, the world’s largest exhibition trade association, released statements supporting the coalition’s position on the deal.

“The merger of two of the largest Hollywood studios will reduce competition in our industry, leading to fewer jobs, lower wages for entertainment workers, less variety of programming, and higher prices for consumers,” the WGA said in a statement, adding that it has engaged with the attorneys general regarding the perceived impact of the merger.

Michael O’Leary, president and CEO of Cinema United, said in a statement, “The ramifications of further movie studio consolidation will be significant and lasting, not just in Hollywood, but on Main Streets across this nation where local movie theaters serve as cultural and financial cornerstones for communities of all sizes.”

Ellison first set his sights on WBD last September. Just weeks after Paramount and Ellison’s Skydance completed its merger, the company made its initial run for WBD, resulting in several bids and a formal sale process.

WBD ultimately signed a deal to sell its film studio and streaming assets to Netflix
However, Paramount launched a hostile takeover offer and subsequently amended its bid. Netflix ditched its deal, and Paramount walked away with an agreement to buy the entirety of WBD for $31 per share.

The deal came under scrutiny from lawmakers in both the U.S. and Europe, including related to foreign funding that was part of Paramount’s offer. In mid-June, the Antitrust Division of the U.S. Department of Justice signed off on the tie-up, clearing it of federal concerns.

“The Division has completed its analysis of the proposed merger of Paramount and Warner Bros. and determined based on the evidence received in its investigation that the transaction is not likely to result in harm to competition or American consumers,” the department said in its determination.

The merger has also won approval from several global jurisdictions as it moves toward a potential close.

However, the European Union is still reviewing the deal for approval, with a new provisional deadline set for July 22. The European Commission said in a public filing this month that Paramount has submitted concessions in a bid to smooth over concerns regarding the deal. CNBC