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In the start of this year came the fiercest bidding war between Paramount Skydance and Netflix for the acquisition of Warner Bros. Discovery, which Paramount won in February with a $110 billion deal. Before the the deal was announced WBD was at around $10 a share but as the deal was announced it has been above and near $25 ever since, roughly a two and half times with essentially the entire price built on one assumption that the deal will close.
On Monday, a federal judge in California granted a temporary restraining order potentially stalling the whole thing. Twelve state attorneys general, led by California on July 13th sued arguing the merger would stifle competition in Hollywood because two movie studios, two streaming platforms (HBO Max and Paramount+) and two news organizations (CNN and CBS News) all will come under one person or one company. The restraining order lasts 14 days, with a hearing set for August 3
One interesting thing to note is that the federal government had already approved this merger. The DOJ closed its antitrust review last week concluding that the deal was not likely to harm competition and might even strengthen it. The states sued anyway, they have independent authority under antitrust law. So now, this isn't companies versus regulators anymore. It's states versus a federal clearance.
WBD fell just 1.7% Monday, Paramount 1.1%. The market is treating this as a temporary two-week speed bump. If the August 3 hearing goes the states' way, this deal enters limbo, potentially for a year or more, with hundreds of millions in costs piling up and every month raising the odds someone walks away.
One major thing to note, during the bidding war, when Paramount was trying to outbid Netflix, it sweetened its offer with a clause that if the deal isn't closed by September 30 2026, Paramount must pay WBD shareholders an extra 25 cents per share every quarter until it closes. That's roughly $650 million per quarter, about $6.9 million per day, coming out of Paramount's pocket and into WBD holders' hands just for waiting. The states' attorney pointed out that the merger agreement itself allows closing as late as June 2027 if there's an ongoing legal challenge, meaning Paramount contractually accepted this exact risk. And top of that all sits a reported $7 billion breakup fee if the deal ultimately dies on regulatory grounds.
If the merger stalls into 2027, WBD holders aren't waiting on a payout, they're holding a declining legacy media business at a price built for an acquisition that might not happen. This is also the first mega-deal of the record $2.8 trillion M&A year to hit a real legal wall, with PayPal/Stripe (unconfirmed), Uber/Delivery Hero, and Rocket Lab/Iridium all still pending.
So, who does a long delay actually affect more. For Paramount, every quarter past September costs them $650 million in delay fees, the estimated $6 billion in annual merger synergies gets delayed, EU approval is still pending on top of the US. WBD shareholders, weirdly, get paid to wait, that 25 cents a quarter is a consolation prize that starts accruing in October. But if the deal doesn't just delay but dies, then Paramount walks away with some (maybe huge) losses with the delay fees and the legal costs and $7 billion in breakup fee, but still standing with its money and its business. WBD holders would be left holding a stock priced near $30 for a deal that no longer exists, on a business that the market valued under $10 before the bidding war began.
Also, to think is that if a deal which was cleared by DOJ can still be stopped or delayed leaglly, so does this change the maths on the other pending big upcoming deals PayPal-Stripe (still unconfirmed), Uber-Delivery Hero, Redwire-Iridium.