The European Commission has launched an investigation into the Paramount-Warner Bros. Discovery merger’s financing from foreign investors, including three Middle Eastern sovereign wealth funds.
Per a notice posted on its website on Tuesday, the regulator is examining the $110 billion deal under the EU’s Foreign Subsidies Regulation, with a provisional deadline set for July 14.
The foreign investment review is separate from the Phase 1 merger investigation also being carried out by the EC, which has set a provisional deadline of July 7.
In addition to the EC, the foreign investment in the Paramount deal is also being reviewed by the U.S. Federal Communications Commission.
Per Paramount’s petition with the FCC, foreign investors would account for 49.5% of the equity of the combined company. The David Ellison-led media giant also asked the FCC for approval for foreign investors “in the aggregate to indirectly hold up to 100 percent of its equity and/or voting interests in light of routine fluctuations in publicly held equity interests and to account for potential future investments.”
The company has emphasized that the ownership stake would not result in a transfer of control and that they would not hold any governance rights or board seats.
Three Middle Eastern sovereign wealth funds will own a total of 38.5% of the non-voting equity in Paramount. Saudi Arabia’s Public Investment Fund will own 15.1% after the deal closes, while L’Imad Holding Company will own 12.8% and the Qatar Investment Authority will own 10.6%.
Other foreign equity owners include “passive limited partner investors” in funds managed by RedBird Capital Partners, which would account for 5.8%, and foreign-based entities that have acquired the company’s Class B stock, who would control 5.2%.
In addition to the EC and the FCC, the merger is being reviewed by the United Kingdom’s Competition and Markets Authority, who will decide whether to refer the transaction for a more in-depth Phase 2 investigation by Aug. 7.
Ellison previously met with U.K. Secretary of Culture, Media and Sport Lisa Nandy and other European regulators in January to tout the benefits of the deal. He also met with met with U.S. Department of Justice officials in May to discuss the transaction. The DOJ’s Hart-Scott-Rodino review period expired in February, though the regulator can still get involved at anytime in the process.
Paramount is also cooperating with various state attorneys general who sent have issued subpoenas, or civil investigative demands, focusing on the DOJ investigation and the competitive effects of the merger. Around 10 state AGs, including California and New York, are preparing to file a lawsuit as soon as this month to block the merger, two individuals familiar with the matter previously told TheWrap.
California Attorney General Rob Bonta previously told TheWrap that “red flags are everywhere when you have a merger of this type” and that the states are prepared to “act timely,” but declined to provide a specific timeline for when a decision could be made.
Separately, Paramount said in an SEC filing on Wednesday that it has secured regulatory approval from the Australian Competition and Consumer Commission, subject to a 14-calendar day waiting period that expires June 23.
In its decision, the ACCC said the deal is “unlikely to have the effect of substantially lessening competition in relation to the wholesale supply of films for theatrical release in Australia.” It added that while the deal would “remove
competition between Paramount and Warner Brothers, the merged entity would
continue to be constrained by other film studios post-Acquisition.”
The New Zealand Commerce Commission also informed Paramount that it “does not intend to consider the Merger further,” adding that the “relevant clearance regime is voluntary, and the NZCC does not give informal clearances to parties.”
The deal has also received clearances from competition authorities in Saudi Arabia, Ukraine, Serbia and North Macedonia and foreign direct investment authorities in Germany, Slovenia, Belgium, Czechia, New Zealand, Italy, France, and Romania.
“Collectively, these approvals underscore a powerful, pro-competitive transaction which will create a well-capitalized, creative-first company positioned to compete against the large tech and media players that dominate the industry today,” a Paramount spokesperson told TheWrap.
The deal, which was also approved by Warner Bros. shareholders in April, is currently on track to close by the end of the third quarter. 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.
