Warner Bros. Discovery moved one step closer to its merger with Paramount on Thursday after shareholders approved the $110 billion deal. But the path only gets more treacherous from here.
While the deal is widely expected to sail through the U.S. Department of Justice, it faces regulatory reviews from the United Kingdom’s Competition & Markets Authority and the European Commission. Lawmakers on Capitol Hill have also called for a national security review by the Committee on Foreign Investment in the United States (CFIUS) over a $24 billion investment from three Middle Eastern sovereign wealth funds, though Paramount has maintained their involvement will not trigger a mandatory review.
But many opponents of the merger are pinning their hopes on a band of state attorneys general, fresh off of legal wins over Live Nation and Nexstar-Tegna, to throw the largest hurdle in front of the deal.
“Shareholder approval was the easy part,” regulatory attorney Braden Perry told TheWrap. “The real fights are just starting.”
Paramount and WBD expect the deal to close by the third quarter, and the clock is ticking. In the event the transaction does not close by Sept. 30, WBD shareholders will receive a 25 cent per share “ticking fee” for each quarter until closing. In the event that the deal does not close at all due to regulatory matters, Paramount will pay WBD a $7 billion termination fee.
“Shareholder approval marks another important milestone towards completing our acquisition of Warner Bros. Discovery, building on our successful equity and debt syndications and progress across regulatory approvals,” Paramount said in a statement following the vote. “We look forward to closing the transaction in the coming months and realizing the creation of a next-generation media and entertainment company that better serves both the creative community and consumers.”
Thousands in the Hollywood community, unions and exhibitor trade groups are working to make sure the deal doesn’t happen.
“While shareholders approved this deal today, this merger is far from final. This proposed acquisition is exactly what our nation’s antitrust laws are designed to prevent,” the WGA said in a statement. “The Writers Guild of America urges antitrust enforcers to intervene and stop further harms to competition in an already consolidated industry. This merger can and must be blocked. “
An AG hat trick?
Despite some observers seeing DOJ approval as a done deal, there’s been a lot of chatter about the state attorneys general stepping in.
There’s optimism because the AGs have quickly built up a strong track record. Just last week, a jury found Live Nation and Ticketmaster operated as a monopoly after more than 30 state AGs continued to pursue the case after the Justice Department and select other states opted to settle. Two days later, a U.S. District judge halted the Nexstar-Tegna merger — which had already been completed after the Federal Communications Commission approved the deal — giving the AGs another big win.
These victories give the AGs a playbook to circumvent the federal regulators and potentially sue to block this deal.
California AG Rob Bonta previously told TheWrap that legal action is still being weighed, but that they are prepared to “act timely” if they choose to do so.
“Red flags are everywhere when you have a merger of this type in this space,” Bonta, who reiterated his promise of a “vigorous” review of the deal, said at the time. “You have to be concerned about the potential increase in prices for consumers of streaming and TV and films that studios make, the potential decreases to wages or the cuts of jobs, the reduced competition, the reduced quality, the reduced choice. All those are potential impacts that we see when there’s corporate consolidation of this nature and we’re looking at that closely.”
“We will ensure that the needed and necessary antitrust enforcement job required for these types of proposed mergers gets done, even if the federal government is abdicating their responsibility and refusing to do their job,” he added.
Los Angeles County’s Department of Economic Opportunity is currently investigating the economic implications of the merger and is expected to make a recommendation in the coming months. A spokesperson for Bonta’s office declined to comment on the active investigation.
The U.K. and EU will have their say
Overseas, all eyes will be on the regulators.
The United Kingdom’s Competition and Markets Authority is seeking public comment on how the deal may impact competition, setting a deadline for April 27. In its notice, the CMA said that it has “received the necessary information from the parties to commence pre-notification,” but has not yet launched a formal investigation into the transaction.
“Effective competition helps ensure UK customers can enjoy quality content at a competitive price. The film and TV industries contribute billions to our economy, so it’s important we assess whether deals between studios may harm competition,” a CMA spokesperson previously told TheWrap. “We expect to launch our Phase 1 investigation in the coming weeks.”
Under a Phase 1 review, the CMA would have 40 working days to decide whether the merger needs a more in-depth review. If it finds concerns with the merger, it will give the merging businesses five days to propose remedies to address its concerns. The CMA would then have up to five more working days to consider the remedies. If none are offered or it does not accept them, the merger would be referred to a Phase 2 review. If it decides to accept remedies provisionally, it would publicly consult on them and consider any responses, with a deadline of 50 working days to make a decision.
If the review moves to Phase 2, an independent “inquiry group,” which consists of three to five people with a range of business, finance, economic and legal experience, would lead the investigation and make the final decision within 24 weeks. In special circumstances, a Phase 2 investigation can be extended by up to eight additional weeks. The inquiry group would then either clear the merger, consider remedies such as asset divestitures or a legal commitment from the merging businesses to behave in a certain way, or block the merger.
Meanwhile, the EC would have 25 working days to analyze the deal under a Phase 1 investigation, where it would decide to clear the merger, request remedies or move to a Phase 2 investigation.
The latter option would involve more extensive information gathering, including companies’ internal documents, extensive economic data, more detailed questionnaires to market participants, and/or site visits. A Phase 2 investigation could last up to 90 working days, with the possibility of further extensions of 15 or 20 days or even that timeline freezing until missing information is supplied.
A Phase 2 investigation could result in the merger being cleared with or without remedies or being blocked. An EC spokesperson did not immediately return TheWrap’s request for comment, though they’ve previously said that the regulator has not been “formally notified” of the deal.
While European regulators have typically followed the lead of U.S. regulators when it comes to American mergers, this deal comes at a time when there are increased tensions caused by last year’s trade wars and the ongoing Iran war. An x-factor is whether these regulators will apply more scrutiny to a deal that has become so intrinsically linked to President Trump.
“A combined Paramount-WBD would control much of the UK market, and the CMA would not hesitate to demand divestitures,” Perry said. “The UK CMA would likely want structural remedies.”
Will regulators kill the Paramount-WBD deal?
Despite the regulatory cloud looming over the closing of the deal, experts said it’s unlikely that it will be killed outright.
“On the merits, we think there’s no justifiable reason to want to keep apart Paramount+ and HBO Max given their places in the subscription streaming industry, and we don’t think linear network overlap is enough to block a deal nowadays given that those businesses are dying and have become much less relevant in the media landscape,” Morningstar analyst Matthew Dolgin told TheWrap. “This leaves us with studios, which is where I think the most scrutiny is deserved. However, after Fox/Disney combined, I’m not counting on this getting blocked.”
Perry said that “material concessions” are “almost certain,” which could include editorial independence protections around CNN and CBS News, content licensing commitments and theatrical release window guarantees, agreements with the Hollywood guilds or in-state production spending floors. He also said the U.K. could target divestitures of assets like Channel 5 or require carve-outs related to the combined company’s sports rights.
“Mega-mergers in media get carved up, not blocked,” he added. “The real question is whether the concessions get heavy enough that the financing math no longer works for the Ellisons. That is where a deal like this actually dies.”
But others are not giving up hope. During a Wednesday event hosted by the Writers’ Guild of America, former FTC commissioner Alvaro Bedoya said Congress or private parties could try to unwind the merger even if it ultimately closes.
“If you don’t see action by a certain date, that does not mean this is done. That does not mean this is over,” Bedoya said.
But that would require Democrats taking back control of Congress in November or a lengthy court battle.
“The history is not encouraging for opponents. Post-close unwinds are rare and usually require clear evidence of harm after the fact, including price hikes, output cuts, or rivals being foreclosed,” Perry added. “If Paramount-WBD closes and then raises streaming prices or cuts off content to competitors, that is when unwind risk becomes real.”
