Paramount has agreed to temporarily pause its $111 billion merger with Warner Bros. Discovery because it wants to move directly to a full court trial instead of spending months fighting over early legal issues. The move could delay the merger until June next year while the court decides whether the deal can go ahead.
The proposal was made by Jeffrey Kessler, Paramount's top trial lawyer, during a call with state attorneys general, according to three people familiar with the call cited by The New York Times. Paramount is now led by tech billionaire David Ellison, who is trying to complete the merger with Warner Bros. Discovery. State attorneys general sued in mid-July to stop the merger because they believe it could reduce competition in the entertainment industry.
Why Paramount paused deal
Jeffrey Kessler suggested skipping those early legal fights and moving straight to trial, according to three people familiar with the call cited by The New York Times. As part of the proposal, Paramount agreed to keep the merger on hold until June at the latest while the legal case is heard. People familiar with the matter said Paramount believes going directly to trial is the fastest way to eventually complete the merger.
The delay leaves the future of several major media brands uncertain, including CNN, HBO and the Warner Bros. film studio. State attorneys general argue that combining Paramount and Warner Bros. would give the new company too much control over theatrical movie releases, especially blockbuster films that generate much of the studios' revenue.
{{/usCountry}}The delay leaves the future of several major media brands uncertain, including CNN, HBO and the Warner Bros. film studio. State attorneys general argue that combining Paramount and Warner Bros. would give the new company too much control over theatrical movie releases, especially blockbuster films that generate much of the studios' revenue.
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Court battle continues
Paramount disagrees and says the states are looking at the market too narrowly because they are ignoring the huge influence of streaming platforms such as YouTube and Netflix. Paramount said in a statement that the pause was "a significant win" because it created "a direct path to a trial."
California Attorney General Rob Bonta also welcomed the development and said, "great news," adding that the states were "eager to continue to make our case", according to The New York Times. Paramount's decision marks a major change from its position just two weeks earlier.
On July 13, state attorneys general had asked Paramount to voluntarily freeze the merger during the legal battle, but Paramount did not want the pause to last beyond September. The states then went to court and won a temporary pause after Judge Araceli Martínez-Olguín ruled that they had made "a strong showing" that the merger could harm competition.
Paramount later tried to stop the judge from imposing a longer pause by asking for a detailed hearing in August and repeatedly requested permission to present witnesses. The states argued in a July 15 court filing that Paramount's proposed schedule was "rushed" and "patently unfair," saying they needed more time to gather evidence before a full trial, according to The New York Times.
Trial date ahead
On Monday, Judge Martínez-Olguín scheduled the injunction hearing for August 3, which was earlier than Paramount wanted, and did not confirm whether witnesses would be allowed. On Thursday, the judge asked Paramount, the states and the Writers Guild to work together on a schedule for the injunction hearing and report back the next day. Just hours after that request, Jeffrey Kessler proposed the merger pause that would allow the case to move directly toward a full trial.
Former Federal Trade Commission chairman Bill Kovacic said, "One explanation is that they want more time to formulate the case, to tell the story as completely and favorably as they can," adding that the states will also have more time to strengthen their own arguments, according to The New York Times. The delay could become expensive for Paramount because it agreed to pay Warner Bros. Discovery shareholders $650 million every quarter if the deal is not completed, starting in October.
If regulators eventually block the merger completely, Paramount will also have to pay Warner Bros. Discovery a $7 billion breakup fee. Paramount and the states agreed to submit their proposed trial schedules next Friday, according to The New York Times. However, both sides want very different timelines—Paramount is aiming for a trial in November, while the states want the case to be heard sometime next year.