State attorneys general from California, New York, Connecticut, and Washington are finalizing an antitrust lawsuit to prevent Paramount's $110 billion merger with Warner Bros. Discovery (WBD). They allege that the combined entity, which they refer to as "ParaBros," would significantly harm competition in the market for major film productions and streaming services. Critics specifically highlight concerns that a merged company would reduce audience choice and stifle the creation and distribution of big-budget films, with one individual stating it is "classic market domination for movies and streaming services, stifling competition."
Despite the Justice Department having approved the merger on June 12, citing that the transaction was "not likely to harm competition or American consumers," the states contend that the deal would be anti-competitive. The lawsuit is expected to be filed as soon as Monday or Tuesday, with some sources noting that New York Attorney General Letitia James was initially cautious but is now "strongly committed" to addressing the competition concerns. The action comes amid allegations of elaborate quid pro quo between Paramount brass and the Trump administration, though sources insist the lawsuit is fundamentally an antitrust action.
Financial analysts like Ric Prentiss from Raymond James believe the increasing likelihood of remedies is negatively impacting PSKY stock, while hopes of closing before state lawsuits or UK intervention are propping up WBD. If the deal is delayed by a lawsuit, costs for Paramount could mount significantly. A "ticking fee" of nearly $7 million per day would be owed to WBD shareholders if the deal does not close on time, potentially reaching $650 million cash each quarter starting in October. Additionally, a reverse termination payout of $7 billion from Paramount to WBD is stipulated if the deal collapses due to regulatory hurdles.
The combined company would face nearly $80 billion in debt. Paramount CEO David Ellison aims to achieve $6 billion in cost savings within three years and substantially lower debt, but stakeholders like theatre owners, actors, and writers have expressed fears of job losses, fewer film choices, and reduced competition. Ellison has attempted to assuage concerns, promising the merged film studios would release 30 movies annually. The lawsuit, if filed, could lead to a quick settlement or a prolonged legal battle, potentially disrupting Paramount's plans to close the deal in the third quarter.
