Paramount Skydance Corp. has settled lawsuits brought by 12 state attorneys general and the Writers Guild trade union, a move that will allow the company to close its historic US$110 billion acquisition of Warner Bros. Discovery Inc .
The parties worked through the weekend to reach the deal, which includes protections designed to limit the market power and ensure the editorial independence of the media giant , which will control two of Hollywood’s biggest studios, two major subscription streaming services and dozens of TV channels ranging from CBS to HBO.
Paramount has promised to release 30 movies a year at the combined studios, a move designed to placate cinema owners and Hollywood talent who believed the merger would reduce film output. Under the terms of the deal, filed with the federal court Monday, half of those films must be produced by the new company.
Paramount would have to pay US$30 million for each film that falls short of that goal. It could also be forced to sell its stake in Miramax, the studio behind movies such as Pulp Fiction, if it fails to meet the targets.
On the television side, the company agreed to negotiate new distribution deals for the Paramount and Warner Bros. cable channels separately. If the company violates that term, it would be required to sell off the BET, VH1, Comedy Central, Smithsonian, Destination America, and Science channels.
In a bid to appease politicians and unions who feared Paramount might move its significant presence from California, the company has agreed to not sell or close either of its big studio lots in the Los Angeles area and invest US$1.5 billion in domestic film and TV production.
“More productions mean more work here at home and more movies for theatres to play, that bring in more business,” California Attorney General Rob Bonta said at a press conference Monday.
Shares of Paramount and Warner Bros. both jumped after Bloomberg News first reported that a settlement had been reached. Paramount ended the day down nearly three per cent, however, while Warner Bros. rose almost 11 per cent and is now trading just a hair below the US$31-a-share acquisition price.
Paramount Chairman and chief executive David Ellison thanked Bonta and the other attorneys general for coming to the negotiating table and said the company now has “complete clearance for this merger.”
David Joyce, a senior analyst at Seaport Research Partners, said in an interview that “the settlement conditions are very reasonable” and include “firmer teeth” for the conditions around the film distribution guarantees.
Paramount’s threat to move out of California was likely a powerful incentive to get a deal done.
“That would’ve been really catastrophic to the industry in California and all of the cottage industries around it, so I think that this is definitely the best case for everybody involved,” Joyce said.
Attorneys general from 12 states, all Democrats, and the Writers Guild had sued to block the deal, arguing that it would give Paramount an undue share of the movie and cable TV industries.
The Block the Merger Coalition, which represents more than 40 organizations that opposed the tie-up, slammed the settlement calling it a “sweetheart deal” that was bad for film and independent journalism. “We are disappointed and angry that the interests of average Americans have been trampled to benefit oligarch billionaires,” the group said.
The litigation was led by Bonta, who took a strident posture in public interviews for weeks, saying that he was opposed to remedies that wouldn’t structurally change the combined companies. Bonta was increasingly isolated after possible opponents to the merger, including big movie chains, and some of his state’s highest-profile politicians seemed to support the deal and urge him to settle.
Four states — Massachusetts, New York, Connecticut and Minnesota — had been holdouts on a possible settlement, but ultimately concluded the expense of the legal battle was not justifiable without California at the helm, Bloomberg reported earlier, citing a person familiar with the matter.
The states that held out longer did succeed over the past week in securing an independent editorial board for CBS and CNN as part of the deal, the person said. Strengthening the board’s independence was part of the reason the holdout states ultimately agreed to the deal, the person said. The board will be composed only of journalists, with no executives or shareholders allowed to join, the person said, adding that the board will be required to have political balance.
The Writers Guild said it had separately reached a settlement with Paramount that would see the company contribute money to a healthcare fund and prevent layoffs at CBS.
Regulators in nearly 70 jurisdictions have already approved the merger, and the Federal Communications Commission and other federal agencies blessed an extraordinary level of foreign financing, making it likely the acquisition can close very soon.
Paramount had targeted a closing date in the third quarter, and had promised late fees of US$7 million a day to be paid to Warner Bros. if the merger wasn’t consummated by the end of this month. Paramount had also agreed to pay a US$7 billion breakup fee if the merger wasn’t approved, terms the company offered in February in order to win Warner Bros. from an existing sale agreement with Netflix Inc.