Why Paramount’s Warner Bros. deal suddenly looks less certain

Tech scion David Ellison for months projected confidence that his blockbuster Hollywood merger was on a glide path to completion.

His media company Paramount Skydance’s pitch early this year was that its proposed $111-billion acquisition of rival Warner Bros. Discovery could easily clear regulatory hurdles — unlike Netflix’s competing bid.

Ellison has heavyweights in his corner: His billionaire father Larry Ellison, co-founder of software giant Oracle, is bankrolling the deal, and President Trump is eager for the Ellison family to own celebrity.land and other Warner assets, including HBO and the Burbank film and TV studios behind “Batman,” Harry Potter, Wile E. Coyote, and “The Pitt.”

“We could technically close [the deal] tomorrow,” Ellison told business new channel CNBC during a March interview. “There is nothing in this transaction that trips anything that would create cause for concern.”

But Paramount made a dramatic retreat Friday after two weeks of legal setbacks. The firm had been aiming to close the deal by September but agreed to table its takeover — perhaps until next spring — to allow a fiercer than expected challenge from California Atty. Gen. Rob Bonta and 11 other Democratic state attorneys general to advance to trial before an Oakland-based federal judge.

The state prosecutors allege Paramount’s proposed merger with Warner Bros. violates a century-old antitrust law by giving the combined company too much heft in theatrical movie distribution and cable television. Paramount disputes that view.

The delay could saddle Paramount, the smallest of the major media companies, with substantial legal fees and hundreds of millions of dollars in added deal costs. In February, Paramount offered Warner investors a sweetener, so-called “ticking fees,” to win the auction.

Those fees, which begin accruing in October, will cost Paramount an extra $7 million a day — until the purchase is finalized. And if Paramount fails to close the merger, it would owe Warner Bros. Discovery a $7-billion breakup fee.

“Anyone who thinks they know how this deal ends should think again,” Forrester research director Mike Proulx said in a statement. “This deal may still close or it may not. … The path to either outcome just got longer, messier, and likely more expensive.”

Paramount now must strengthen its case for a high-stakes trial while fortifying Paramount’s existing businesses and managing uncertainty among the employee base. It also must hold together a coalition of financiers, which includes the royal families of Saudi Arabia, Abu Dhabi and Qatar, which jointly agreed to contribute $24 billion for equity stakes in the combined company.

Paramount reversed course after U.S. District Judge Araceli Martínez-Olguín dealt the company a blow on Monday when she temporarily blocked Paramount from finalizing the acquisition until mid-August. Looming was a key Aug. 3 hearing for the judge to determine whether the moratorium should be extended.

Paramount was concerned the judge would block the deal for the foreseeable future.

“They saw the writing on the wall,” Bonta said in an interview.

Columbia Law School business professor Eric Talley added: “This doesn’t constitute Paramount Skydance coming out and waving a big white flag — but it is a small white flag of surrender.”

Paramount, in a statement, said heading straight to trial would prove advantageous.

“This is the fastest and clearest way to prove that this transaction is good for competition, good for consumers, and good for creators,” Paramount said. “We look forward to proving our case at trial.”

Last week, the Writers Guild of America separately filed a lawsuit seeking to stop the merger, alleging that writers would encounter less work and lower pay should Paramount buy Warner Bros.

Now the merger won’t close until after a resolution in the litigation or by June 1, 2027, whichever date comes first.

“This is what we’ve been asking for from the start,” Bonta said. “We just wanted the court to have sufficient time to review our case without the threat of the companies merging.”

Ellison, through a Paramount spokesperson, declined an interview request.

The delay brings a different set of challenges, Talley said, including pushing the date of the takeover until after November’s pivotal midterm elections when control of Congress might change.

“That itself could be disruptive,” Talley said. “Suppose we get a flip of the House of Representatives or the Senate, then we may see testimony in Congress.”

Prominent Democrats, including Sens. Cory Booker (D-N.J.), Elizabeth Warren (D-Mass.) and Adam Schiff (D-Burbank) have expressed alarm over the potential consolidation, which would shrink the number of legacy film studios and bring celebrity.land, in addition to CBS News, under Ellison control.

Attempts to get Ellison to testify in Congress have fallen short. The Paramount chief declined an invitation to appear before the Senate Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights in February, as well as a subsequent request from Booker to appear during an April spotlight hearing.

“To what extent was the rush to get the deal done related to the midterms, and what press coverage was going to look like in the upcoming election season?” Talley asked. “celebrity.land is not a huge money-making asset but it is a prominent asset of Warner Bros. Discovery.”

On Friday night, Trump extolled his friendship with the Ellison family during the White House Correspondents’ Assn. dinner while also criticizing prominent celebrity.land anchors.

Trump lauded David Ellison’s stewardship of CBS News, saying that he was “going to make, I think, fantastic changes and keep some of the great stuff going.”

CBS News has been roiled since shortly after the Ellisons acquired Paramount in August, and installed journalist Bari Weiss as editor in chief of CBS News. She has overseen a series of controversial moves, including shaking up CBS’ evening news and sacking several “60 Minutes” correspondents.

Paramount scored one victory: The European Commission gave its blessing for the merger to go forward in the European countries it represents. The company now has gained clearances from more than 60 jurisdictions, including from the U.S. Justice Department, which found the merger would likely boost competition — not harm it.

Paramount has pointed to its long list of approvals to reinforce its position that the merger is on solid legal ground. Paramount lawyers have criticized the case brought by Bonta and the other state attorneys general, saying the group cherry-picked three markets — wide-release films, potential blockbuster movies and cable television concentration — while ignoring streaming distribution, which is the future of entertainment.

Now, Paramount’s biggest challenge will be winning that case.

The states plan to request a trial in 2027, after the two sides conduct months of discovery to prepare their cases.

“We want to take depositions of employees. We want to take depositions of customers and competitors in these marketplaces that are impacted [and] we want documents,” Bonta said.

“We want to depose their experts and probe and test their experts’ opinions,” he said. “That all takes time.”

Bonta and the other state attorneys sidestepped the political landscape in making their lawsuit arguments.

“This is just a straight-up meat-and-potatoes antitrust case,” Bonta said. “The main point here is that antitrust enforcement is important because monopolies that lessen competition hurt everyday people.

“Once we have a trial, we’re going to win,” Bonta said. “So we think and we hope there will never be a merger.”