US States Prepare Lawsuit Against Paramount Over Warner Bros. Discovery Acquisition

Several U.S. states are preparing to sue Paramount over its Warner Bros. Discovery acquisition. California is leading the investigation into potential competition law violations. This merger faces opposition from Hollywood actors and theater owners fearing job losses. Paramount argues the combination will help it compete for audiences and talent. A lawsuit could delay the deal and increase Paramount's significant debt burden.

U.S. states concerned that Paramount's $110 billion acquisition of Warner Bros. Discovery will hurt competition could sue to block the deal as soon as next week, two sources familiar with the matter told Reuters.

California Attorney General Rob Bonta has taken the lead in investigating whether the deal violates U.S. laws against mergers that would unlawfully harm competition.

Also read: Oregon seeks 60-day pause on Paramount-Warner Bros merger over withheld records

A spokesperson for Bonta's office declined to comment. A Paramount spokesperson ‌did not immediately ⁠respond to ⁠a request for comment.

The deal, which would combine two of Hollywood's four major studios, has drawn criticism from actors, writers and others in Hollywood who fear job losses. Theater owners also oppose the combination of the Warner Bros movie studio, maker of the "Harry Potter" and "Superman" films, with Paramount Pictures, and have expressed concern the merger would result in fewer movies, narrowing consumer choice and eroding competition.

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Paramount has said that combining forces with Warner Bros would allow the media company to tackle ⁠mounting competition ‌for audiences, talent and investment. Paramount CEO David Ellison has sought to assuage the concerns of theater owners, saying the combined film studios would release 30 movies a ⁠year.

If the deal is delayed because of a court challenge, costs could mount for Paramount, which is already expected to carry around $80 billion in debt after the transaction closes.

Ellison has agreed to pay Warner Bros. Discovery shareholders a 25-cent-per-share "ticking fee," amounting to about $650 million in cash each quarter, if the deal does not close before October.

In early June Reuters reported California, New York and other U.S. states were preparing a lawsuit as state officials look to step up their scrutiny of big mergers and acquisitions as federal ‌antitrust authorities have loosened their reins.

Also read: Paramount moves to ease EU antitrust concerns over Warner Bros Discovery deal

Analysts have said Paramount's political connections and other factors gave it an easier road to regulatory clearance from federal antitrust watchdogs in the U.S. The Paramount CEO's father, billionaire ⁠Oracle co-founder Larry Ellison, has cultivated ties with President Donald Trump.

Not all lawsuits seeking to block mergers succeed. But they can delay the consummation of deals by months if a judge issues an order pausing the merger while the case plays out. Given that multiple states are coordinating, it is possible the timeline for filing the lawsuit could change.

A court could order Paramount and Warner to hold their assets separate, delaying the $6 billion in cost cuts that Paramount has said it would make after the deal closes.