Paramount-Warner Bros. Merger Paused As States’ Challenge Proceeds

A federal judge has granted a bid from a coalition of 12 states to temporarily stop Paramount from closing its $110 billion takeover of Warner Bros. Discovery.

U.S. District Judge Araceli Martínez-Olguín on Monday issued a temporary restraining order after the states sued last week. The emergency motion sought to prevent the studio from moving ahead with the merger for 14 days.

“The Court ultimately finds the public interest favors their requested TRO to stay the merger in the interim,” Martínez-Olguín wrote in the order.

In a statement, California attorney general Rob Bonta called the decision a “critical first win in our case to ensure this megamerger never sees the light of day.”

“History tells the tale of what happens when a few people have great power over markets that are central to Americans’ lives: fewer opportunities for more people, worse products and services for all people,” Bonta added. “With our lawsuit, we’re fighting for a free and fair market and a thriving film and television industry that serves creatives and audiences alike. We have a full tank of gas, the law on our side, and look forward to continuing to make our case.”

Paramount didn’t immediately respond to a request for comment.

The states’ lawsuit alleged that the acquisition will substantially throttle competition in wide-release and top-grossing theatrical distribution and cable licensing in violation of antitrust laws.

Monday’s decision swung on Paramount’s anticipated 27 percent market share in wide-release theatrical distribution. On that front, the court found that it can “presume the proposed merger is likely to violate antitrust laws” because it may “substantially lessen competition.”

“The Transaction would also be difficult, if not impossible, to unwind if permitted to proceed given the anticipated consolidation of operations, sharing of business-sensitive information, and potential termination or reassignment of employees,” Martínez-Olguín wrote.

Another consideration: The studio conceded that it wouldn’t suffer any harm if the deal was frozen for a short period.

That harm will begin to surface on Sept. 30, after which Warners shareholders would be owed roughly $650 million per quarter or $6.9 million per day if the transaction isn’t closed.

For Paramount, the deadline is a key issue. It offered not to consummate the acquisition for up to a month if the court agreed to schedule preliminary injunction proceedings at the end of August in order for a decision to be rendered before the ticking fee is triggered. The states have asked the court to start those proceedings next year.

Leading up to oral arguments last week on the emergency motion, Paramount maintained that the states’ understanding and calculation of the markets at issue in the case are faulty.

A hearing on whether the court should issue a preliminary injunction, which would stop Paramount from closing until the case is decided, is scheduled for Aug. 3. If the motion isn’t granted, the studio is positioned to finish the transaction.