A US federal judge has ordered Paramount Skydance to pause its proposed $110 billion acquisition of Warner Bros. Discovery until August 3, handing an early legal victory to a coalition of states led by California that argues the merger would unlawfully reduce competition.
US District Judge Araceli Martínez-Olguín, sitting in Oakland, ruled on Monday that the coalition, which includes New York, Colorado and Massachusetts, had made a “strong showing” that the proposed acquisition would likely violate antitrust law by substantially decreasing competition.
The ruling temporarily blocks the transaction while the court considers whether the merger should remain on hold for the duration of the lawsuit, which could take months to resolve. Judge Martínez-Olguín has scheduled a hearing for August 3 to determine whether the injunction should be extended.
Following the decision, Warner Bros. Discovery shares fell by as much as 4% in afternoon trading.
Reacting to the ruling, New York Attorney General Letitia James said:
“Today’s decision is an important victory for all those who would be hurt by this merger, and I look forward to continuing to fight this case.”
Paramount defended the proposed transaction, rejecting the states’ competition concerns.
A company spokesperson said:”We are confident the evidence will demonstrate that the State AGs’ antitrust arguments are without merit as their alleged markets and claims of anticompetitive effects are without any basis in modern market realities.”
The lawsuit, filed in the Oakland federal court, threatens to derail Paramount Chief Executive David Ellison’s plan to transform the company into a stronger competitor to Netflix and Disney.
California and 11 other states filed the suit on July 13, arguing that the merger would create a media giant with the power to raise prices across the film and television industries.
In her ruling, Judge Martínez-Olguín agreed with the states that allowing the deal to close before the case is decided could result in irreversible changes, including job cuts and the sharing of sensitive business information, even if the merger is ultimately found to be unlawful.
The judge also said the transaction appears likely to breach antitrust law if, as alleged by the states, it gives the combined company a 27% share of the market for the distribution of widely released films. She noted that a final determination would be made after both sides present evidence during the trial.
Judge Martínez-Olguín also rejected Paramount Skydance’s argument that the recent entry of companies such as Amazon and Apple into the film industry was sufficient to demonstrate that the merger would not harm competition.
The states further argued that fewer film distributors would make it easier for major studios to pressure cinema operators into accepting a larger share of box office revenue.
A prolonged delay could also prove costly for Paramount Skydance. Under the terms of the merger agreement, David Ellison would be required to pay Warner Bros. Discovery shareholders a “ticking fee” of 25 cents per share—equivalent to about $7 million per day—for every day the deal remains delayed beyond September 30.
Boluwatife Enome
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