Paramount has been forced to pause consummation of its controversial $111 billion merger with Warner Brothers after a state antitrust lawsuit resulted in the courts granting a 14-day restraining order. There’s a not insubstantial chance that the pause could prove fatal for the deal.
California and eleven other states last week filed an antitrust lawsuit to block the merger, pointing out that the consolidation would undermine market competition, and result in layoffs, higher consumer prices, and product quality hits as the merged company attempts to pay down a massive debt load. As we’ve previously mentioned, every deal involving Warner Brothers has resulted in such an outcome.
Judge Araceli Martinez-Olguin granted a 14-day restraining order after hearing arguments from both sides last Friday. The delay has the potential to be doubled as the courts debate the merits of the state antitrust case. Such delays can sometimes prove fatal for transactions of this size, resulting in mergers being scrapped before antitrust litigation can fully debate the deal merits.
“Plaintiff States’ showing at least demonstrates that serious questions going to the merits remain, weighing in favor of preliminary injunctive relief,” the judge wrote. “Paramount and Warner Bros. will continue to operate as separate, viable companies competing in the marketplace while they wait for the Court to adjudicate this case. The balance of equities, combined with the public’s vital interest in antitrust enforcement, therefore tips sharply in favor of the requested injunctive relief.”
Paramount had previously indicated that the company wouldn’t be harmed by delays until at least the end of September, at which point things could get complicated for Paramount’s merger, and Larry Ellison’s broader media domination ambitions.
Ellison and Oracle are aggressively over-leveraged on AI, and should an AI bubble pop trigger economic reverberations during the antitrust debate, Ellison’s ability to manage the deal debt load and financing could prove less tenable. Especially given that as of September 30, Paramount has promised shareholders a “ticking fee” compensation amounting to about $7 million per day if the deal isn’t closed.
As the antitrust lawsuit loomed, Paramount executives seemed increasingly desperate to rush the deal to completion, at one point (falsely) threatening to leave California, and at another point (falsely) claiming that opponents of the deal were engaged in antisemitism.