Paramount Skydance-Warner Bros. Discovery merger paused by federal judge

A federal judge has paused Paramount Skydance's takeover of Warner Bros. Discovery in response to a lawsuit last week from a dozen state attorneys general looking to block the deal on antitrust grounds.

Why it matters: The delay represents the most significant legal challenge related to the merger globally to-date.

• While some foreign regulators, including the U.K.'s Competition and Markets Authority, are still reviewing the deal, none have issued an order that independently bars Paramount and WBD from closing.

Zoom in: On Monday, California District Judge Araceli Martínez-Olguín issued a 14-day restraining order that prevents Paramount and WBD from closing their deal.

• The judge argued it was in the public's best interest to issue the pause, because the states raised antitrust questions in their lawsuit that warrant further review.

Between the lines: The states have also requested a preliminary injunction to block the deal until the judge rules on the merits of their case.

• In her order, Martínez-Olguín set a preliminary injunction hearing for Aug. 3 to determine whether the temporary restraining order needs to be extended. That date could be delayed if the parties agree.
• The judge notes that the temporary restraining order can be extended for good cause. The order could be extended to as long as 28 days.

Catch up quick: The coalition of states that sued to block the merger last week asked for an injunction that would not allow the two companies to close the deal until after the judicial process concludes.

• The states and Paramount both presented their arguments to the judge last week.
• The lawsuit, which was led by California Attorney General Rob Bonta, argued the merger would reduce competition among movie studios and would have too much market power over cable channels.

What they're saying: "This is a critical first win in our case to ensure this megamerger never sees the light of day," Bonta said.

• "Consolidation in the film and television industry not only leads to higher prices, but it also leads to fewer opportunities for important stories to come to life and fewer ways for audiences to encounter stories, ideas and perspectives beyond their own experiences."

The other side: A Paramount spokesperson said in a statement, "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."

• "This merger is lawful, pro-competitive, and will benefit consumers, creators, workers, and the entertainment industry," they said.

Zoom out: Not only does the pause create uncertainty for Paramount and WBD shareholders as they look to get the deal over the finish line, but any delay could also cost Paramount hundreds of millions of dollars.

• Paramount promised WBD shareholders a 25-cent-per-share ticking fee for every quarter the deal doesn't close by Sept. 30, totaling around $650 million per quarter.

What's next: Paramount said it hopes to close the deal by the end of September.

Editor's note: This story was updated with Paramount's statement.