Careful what you bid for: The Ellisons’ Paramount/WBD deal is slipping toward a costly legal and financial cliff

The merger between Paramount and Warner Bros. Discovery, valued at $110 billion, is facing legal and financial challenges that could potentially scuttle the deal. After a series of rejections, a hostile tender offer, and a Delaware lawsuit, the deal was finally signed in February, but it quickly came under attack from state attorneys general.

A coalition of state attorneys general, led by California's Rob Bonta, filed a lawsuit in mid-July to block the merger, arguing that it would create a dominant force in the American entertainment industry, violating antitrust laws. Over 5,500 industry professionals, including Hollywood A-listers such as Robert De Niro, Glenn Close, Jane Fonda, and Lin-Manuel Miranda, have signed an open letter urging regulators to block the merger, citing concerns over job losses and weakened paychecks for the creative professionals who make the movies.

Paramount's defense is led by chief legal officer Makan Delrahim, who has a history of opposing large-scale media mergers. The company has pledged to release at least 30 wide theatrical films a year, but the pledge has been called empty, as the two studios have consistently failed to meet their release targets even before the pandemic.

The merger is also facing scrutiny over its potential impact on the distribution and cable programming markets, with the share of domestic ticket sales from the post-merger distribution market nearing 1,960, well above the 1,800 threshold considered highly concentrated by the Department of Justice. The merger would also give the combined company a significant share of cable network owners in the U.S., further raising antitrust concerns.

The case has been further complicated by a lawsuit filed by the Writers Guild, arguing that the merger would give the combined company a commanding share of film and television writing jobs. In light of these legal challenges, the merger has been put on hold, with Paramount agreeing to hold the merger until five days after a trial verdict or June 1, 2027, whichever comes first.

The trial date itself is the subject of contention, with the states seeking a start date of April 2027, while Paramount wants it to be in November 2026. The outcome of the trial could have significant implications for the future of the entertainment industry, and the fight over the merger continues to rage.