State AG Lawsuit Threatens Paramount's $110B WBD Deal

David Ellison's pursuit of Warner Bros. Discovery has run into its toughest obstacle yet: a coalition of state attorneys general led by California's Rob Bonta. The antitrust lawsuit, filed in mid-July, challenges the $110 billion merger on grounds that it would create presumptively illegal concentration in film distribution and pay TV. A preliminary injunction paused the deal's closing, with a trial now set for March.

The delay carries real costs. Paramount has asked the court to force the suing states to post a bond of $1.88 billion to cover the ticking fee the company owes WBD shareholders for each day the deal remains open past Sept. 30. That fee could add hundreds of millions to the transaction's already high price tag.

Ellison, who took over Paramount Skydance a little over a year ago, has been trying to buy WBD since last September. He made three unsolicited bids before the company entered formal talks. Netflix initially won the bidding war but walked away in February. Paramount then signed an agreement to buy all of WBD. Global regulators, including the U.S. Department of Justice's antitrust division, cleared the deal. The state AGs are the only remaining challenge.

Bonta has said his aim is partly to fill a void he sees in federal enforcement under President Trump. The Ellison family's ties to Trump have drawn criticism. Larry Ellison, the billionaire Oracle co-founder and David's father, is a longtime Trump supporter, and Trump has said he would like to see WBD's CNN land in Paramount's hands.

Paramount began outreach to Bonta's office in the spring, according to a person familiar with the matter, sending a list of potential concessions by mid-May. The contents of that list remain unclear, but Bonta has said the company wanted to discuss everything except the three markets his complaint targets: film, pay TV, and broadcast.

"They want to talk about the streaming market, which we don't allege in our complaint," Bonta said in a CNBC interview last week. "They want to talk about CNN, which is not a focus of our complaint."

Paramount tried other avenues. Ellison wrote a New York Times op-ed. The company secured contracts with Hollywood exhibitors, guaranteeing at least 30 films per year with 45-day theatrical windows for three years. Reports surfaced that Paramount considered relocating its headquarters to Tennessee – a threat Bonta called "blackmail." The suggestion largely backfired, a person familiar acknowledged.

The talks collapsed last week after a meeting at Bonta's office. Private discussions about potential divestitures of some pay TV networks leaked to the media. Bonta's office accused Paramount of sourcing the leak and showing a "lack of good faith." Paramount denied it.

"As soon as Paramount stops playing games and engages sincerely, my office is happy to meet again," Bonta said.

The states argue that combining Paramount's and WBD's pay TV networks –Paramount owns Nickelodeon, MTV, BET, and CBS; WBD owns TNT, CNN, TBS and Discovery – would create the biggest portfolio in the industry, giving the combined company outsized power in negotiations with distributors.

Whether the pay TV market is shrinking is irrelevant, Bonta said. "The economics of pay TV are being dictated by consumer behavior rather than consolidation," Bernstein analysts wrote in a note, contending that scale alone does not establish dominance. "Neither company has possessed the scale necessary to compete effectively against much larger global streaming platforms and well-funded technology companies."

Paramount's argument for the merger is precisely scale. Executives believe the rate of pay TV subscriber losses is starting to stabilize. Andy Gordon, Paramount's chief strategy officer, said the industry could settle around 35 million subscribers in the U.S. Still, S&P Global Ratings noted that while cord cutting has slowed, media companies won't have much leverage in distribution talks for the next couple of years.

The combined company would have nearly $80 billion in debt if the deal closes. WBD has been aggressively paying down debt since the 2022 Warner Bros. Discovery merger. Paramount would inherit that burden.

The March trial date is later than Paramount executives had hoped, according to two people familiar. If no settlement is reached, the case will test whether the states can block a merger that federal regulators approved. The outcome could set a precedent for state antitrust enforcement.

WBD shares carry an Alpha Score of 47 out of 100 on AlphaScala, reflecting a mixed fundamental picture amid the deal uncertainty. WBD stock page has more detail.

Talks remain on hold. No settlement discussions are publicly scheduled.