Paramount shocked the entertainment industry late last Friday when it announced that it would delay its closing on the pending merger with Warner Bros until either June 1st, 2027, or when the recently filed lawsuit with the U.S. Attorneys General of 12 U.S. States is resolve. Until recently, the momentum towards completing its $111B acquisition of Warner Bros. Discover appeared unstoppable, having received approval from the U.S. Federal Government, European Union, and China. However, an antitrust lawsuit led by California AG Rob Bonta accused Paramount of violating the Clayton Antitrust Act and called for the merger to be blocked.
This lawsuit had been widely expected, as Bonta had been signaling his intentions for months. However, the delay in the merger came after an initial ruling by the U.S. Federal Judge presiding over the case. Judge Martínez-Olguín indicated that the lawsuit appeared to have strong legal standing, and those within Paramount were worried that a case being ruled by her would lead to the merger being blocked. By delaying the merger, Paramount is anticipating that it will receive a wider review that goes beyond Judge Martínez-Olguín.
While Paramount’s decision to delay has legal rationale, the company stands to lose financially in two ways. First, the delay pushes Paramount past the starting date of its “ticking fee”, a clause inserted into its agreement with Warner Bros. that requires Paramount to pay an additional $7 million per day for every day past October 1st when the merger has not yet completed. $7 million per day is not a lot in the scope of a $111 billion merger, but it could still add up to a material amount if the delay is substantial. Moreover, if the merger winds up falling apart Paramount will owe Warner Bros. a $7 billion “breakup fee.”
Another substantial cost is time lost before the merged company can reorganize its operations, having to put on hold longer term plans or other potential acquisitions. While Paramount CEO David Ellison remains confident in the deal’s ultimate completion, this substantial delay has put that eventuality into question.
