Paramount’s Warner Bros. Discovery deal is on hold after state lawsuit

Paramount’s planned $111 billion takeover of Warner Bros. Discovery has been paused by a federal judge, delaying a deal that would reshape streaming, film, cable TV and news. For everyday investors, the hold matters because large media mergers can change company debt levels, competitive pressure, consumer pricing and the value of the assets investors are betting on.

U.S. District Judge Araceli Martínez-Olguín issued a 14-day pause after a coalition of 12 state attorneys general sued on July 13 to block the transaction. The states argue the merger would reduce competition and harm movie theaters, cable distributors and viewers.

The pause runs until August 3, when the court is set to consider whether the freeze should continue. Paramount had previously aimed to close the acquisition as early as July.

How Paramount ended up ahead

Warner Bros. Discovery said in October that it was reviewing strategic options after receiving unsolicited interest from several industry players. The company had been dealing with a heavy debt load, shrinking cable viewership and tougher competition from streaming services.

Netflix first appeared to win the contest in December, announcing an $82.7 billion deal for Warner’s studios and streaming assets. That would have included the parts of Warner most closely tied to film, TV production and direct-to-consumer streaming.

Paramount kept pressing with a broader proposal. Its offer covered all of Warner Bros. Discovery, including studios, HBO, streaming platforms, games and TV networks such as CNN and HGTV. After raising its bid to $31 per share in February, Paramount won over Warner Bros. Discovery’s board. Netflix declined to raise its bid and exited the process.

Netflix co-CEOs Ted Sarandos and Greg Peters said on February 26 that the deal Netflix had negotiated would have created shareholder value, but that matching Paramount Skydance’s latest price was no longer financially attractive.

Debt is a central issue

Acquisitions are often funded with a mix of cash, stock and borrowed money. In this case, debt is a key part of the investor story because the combined company would carry obligations from both sides.

Under the agreement, Paramount would assume about $33 billion of Warner Bros. Discovery debt. The deal is backed by a $54 billion debt commitment from Bank of America, Merrill Lynch, Citi and Apollo Global Management, along with $45.7 billion in equity from Larry Ellison, according to the reported transaction financing details.

Warner Bros. Discovery’s board had earlier rejected Paramount proposals, citing concerns including debt and the investor group backing Paramount’s bid. The board said at the time that one version of the proposal would leave the combined company with $87 billion in debt.

Regulators and states are still in the way

The U.S. Department of Justice approved the transaction in June. That did not end the legal risk, because state attorneys general can still sue under antitrust law. Antitrust rules are meant to stop deals that could give one company too much market power, which can lead to higher prices, fewer choices or weaker terms for suppliers and workers.

The state coalition is led by California Attorney General Rob Bonta and includes Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington. The lawsuit says the merger would lessen competition in wide-release theatrical film distribution, top-grossing theatrical distribution and basic cable licensing.

Paramount has disputed the states’ case. A Paramount spokesperson said the company believes the attorneys general’s antitrust arguments lack merit and that the merger is lawful, pro-competitive and beneficial for consumers, creators, workers and the entertainment industry.

If completed, the deal would bring together Paramount+ and HBO Max, combine major studios and put networks including CBS, MTV, CNN and HBO under one corporate roof. For now, the next step is the August 3 hearing, where the court will decide whether the temporary pause should last longer.

This story draws on original reporting from TechCrunch.