States expected to sue over Paramount Skydance’s Warner Bros. Discovery deal

A group of state attorneys general is expected to sue to block Paramount Skydance’s planned acquisition of Warner Bros. Discovery, CNBC’s David Faber reported. For investors watching media stocks, the point is timing: the deal has federal approval, but a state-level antitrust fight could still complicate the path to closing.

Faber reported that the lawsuit could be filed as soon as Monday and is expected to include California Attorney General Rob Bonta. The challenge is expected to argue the deal should be stopped on antitrust grounds. Antitrust law is the set of rules meant to prevent companies from gaining too much market power, reducing competition or hurting consumers.

The proposed merger would put two major Hollywood studios, Paramount and Warner Bros., under one corporate roof. It would also combine Paramount+ with HBO Max. Paramount CEO David Ellison has previously said the two streaming services would become a single service after the transaction.

The TV side is just as important. The deal would bring CBS, MTV and BET together with Warner Bros. Discovery’s CNN, TNT and other networks, creating what CNBC described as the largest portfolio of TV networks in the United States.

Federal regulators have already cleared the deal

The expected state lawsuit would come after the U.S. Department of Justice cleared the transaction in mid-June. In its determination, the DOJ said its Antitrust Division had reviewed the merger and found, based on evidence gathered in its investigation, that the deal was “not likely to result in harm to competition or American consumers.”

That federal approval removed one major obstacle, but it did not end regulatory review everywhere. CNBC reported that the merger has also received clearance from several global jurisdictions. The European Union is still reviewing the transaction, with a provisional deadline of July 22. The European Commission said in a public filing this month that Paramount had offered concessions to address concerns about the deal.

Warner Bros. Discovery shareholders approved the merger in April. Ellison said on a recent earnings call that the transaction remained on track to close by September, according to CNBC.

Why Hollywood and regulators are watching

The combination has drawn scrutiny from lawmakers in the U.S. and Europe, including questions tied to foreign funding that was part of Paramount’s offer, CNBC reported.

Hollywood has also raised concerns about what a larger combined company could mean for the industry, including the possibility of fewer movie releases and job losses. Ellison has said the merged studios would release 30 films a year and has said he is committed to protecting jobs, according to CNBC.

The agreement followed a long and competitive sale process. Ellison first targeted Warner Bros. Discovery last September, shortly after Paramount and Skydance completed their own merger. Paramount then made an initial approach for Warner Bros. Discovery, which led to several bids and a formal sale process.

Warner Bros. Discovery ultimately agreed to sell its film studio and streaming assets to Netflix. Paramount responded with a hostile takeover offer and later revised its bid. Netflix dropped its agreement, and Paramount secured a deal to buy all of Warner Bros. Discovery for $31 per share, CNBC reported.

This story draws on original reporting from CNBC.