Paramount and Warner Bros Discovery have reached a settlement with California and other states challenging their merger, effectively clearing the final regulatory hurdle for the $111 billion deal to proceed. Warner Bros Discovery shares rose 7.1% in early trading, while Paramount Skydance gained 5.3% following the settlement announcement, as reported by Reuters. If sustained, the gains would add a combined $5.59 billion to the companies' market valuations. The settlement comes just days before Paramount was due to start paying a $7 million daily fee to Warner Bros shareholders for each day the deal remained unfinished beyond September 30. The merger would bring together two of Hollywood's biggest studios, key TV networks like CBS and CNN, and streaming platforms HBO Max and Paramount+, as well as decades of libraries with titles ranging from "Harry Potter" to "Top Gun." The companies said earlier this year the merger will mean $6 billion in savings, through moves including cost cuts that would likely affect jobs across Hollywood as well as the CNN and CBS newsrooms.
David Ellison, the son of Oracle co-founder Larry Ellison, was just 23 when he arrived in Hollywood in 2006, and Hollywood insiders initially dismissed him as a wealthy novice. A 2015 GQ profile ran with the headline "The Kid Pays for the Picture," reflecting the skepticism he faced in the industry. On Monday, after a remarkable run of dealmaking and brinkmanship, Ellison — now 43 years old — stood on the verge of adding Warner Bros Discovery to his Paramount Skydance, giving him control of two businesses that helped invent the movie and television industries. "David's about to become the Hollywood equivalent of Superman, Caesar and Midas combined," said veteran film financier Joseph M Singer, a former studio executive. "He won't just be sitting at the table. He'll have extraordinary influence over who gets a seat." In an email to Paramount employees on Monday, Ellison said he expected the Warner Bros Discovery takeover to close in about two weeks, positioning the closing as the starting line rather than the culmination of his journey.
The settlement includes a $30 million penalty per film for any shortfall against Paramount's pledge to release 30 movies annually, according to sources familiar with the matter reported by Reuters. Paramount has agreed to pay $30 million in penalty for each film that falls short of its 30-movies-a-year target, per the source. The penalty structure represents a significant escalation from previous discussions, with the company potentially also being forced to sell its stake in Miramax if it fails to meet the distribution target. While Paramount has maintained this 30-film pledge for some time, California Attorney General Rob Bonta has repeatedly opposed such remedies due to enforcement difficulties. Analysts note that hitting the 30-film target is hardly a tall order for the combined entity, which would have franchises ranging from the DC Universe and Harry Potter to Transformers and Star Trek under one roof. Paramount and Warner together are expected to release 28 films this year based on current schedules, with the company able to buy films to distribute rather than produce itself to meet the agreement.
The settlement includes the creation of independent editorial boards for CNN and CBS, marking a significant concession to address antitrust concerns about newsroom independence. According to Reuters, this represents a major shift from previous discussions where states had opposed an editorial monitor for CNN rather than a divestiture of the news network. Other measures under consideration include selling some cable channels and creating a board to help ensure CNN retains editorial independence, WSJ had reported. The settlement orders the company to negotiate deals for current Paramount-owned and Warner-owned basic channels separately for the next five years, which the states say will help keep consumer prices down. The settlement also includes Paramount agreeing to prohibit writer layoffs at CBS News for five years and to pay $17.5 million to WGA's health fund, along with attorneys' fees from the litigation, as confirmed by the Writers Guild of America. The coalition of states — including entertainment heavyweights like California and New York — sued to block the merger in July, alleging a Paramount-Warner combo would "extinguish competition" and lead to fewer choices for consumers, particularly movie theatergoers and cable customers across the U.S., as reported by Associated Press.
Bankers are reaching out to investors ahead of the sale of $49 billion in financing backing Paramount Skydance Corp.'s takeover of Warner Bros. Discovery Inc., after the company settled a series of lawsuits that had held up the $111 billion acquisition. Bank of America Corp., Citigroup Inc., and Apollo Global Management Inc. underwrote one of the largest buyout debt packages on record earlier this year to fund the takeover, and lined up significant investor demand before the deal ground to a halt amid the threat of legal proceedings. The package includes about $30 billion of investment-grade bonds, $7.5 billion of investment-grade loans and roughly $12 billion of second-lien bonds, targeting a wider range of dollar and euro investors than is typical for a leveraged buyout. The debt was structured to leave Paramount on the hook, rather than its lenders, if borrowing costs rise, which should prevent a repeat of the hit banks took on so-called hung loans in 2022. The financing comes with no caps on the interest rate, letting lenders raise the cost to the company if the market deteriorates, as both the Federal Reserve and European Central Bank have raised rates since the deal was underwritten.
The settlement includes a $1.5 billion investment commitment in production in California, according to sources familiar with the negotiations reported by Reuters. Among terms of Monday's agreement, Paramount pledged to increase domestic production by spending at least an additional $1.5 billion on U.S. film production over the next five years, as reported by Associated Press. Regulators in nearly 70 jurisdictions have already approved the merger, and the Federal Communications Commission and other federal agencies signed off on an extraordinary level of foreign financing, making it likely the acquisition can close very soon. The acquisition means Paramount will control two of Hollywood's biggest studios, two major subscription streaming services and dozens of TV channels ranging from CBS to HBO. The expectation is that the deal will sell down quickly once it's launched, with the package being sold using financial metrics from earlier in the year. Bankers will consider launching the debt sale prior to the deal's close, and if that can't be organized in time, the banks will provide the debt and Paramount will pay them the interest until they sell it on from there. The settlement still needs a final sign-off by a judge, as noted by Associated Press.
