A federal judge in Oakland, Calif., temporarily blocked Paramount Skydance's $110 billion acquisition of Warner Bros. Discovery on Monday, granting a 14-day restraining order sought by a dozen state attorneys general who argue the combination would violate more than a century of U.S. antitrust law.
U.S. District Judge Araceli Martinez-Olguin issued the order after hearing arguments in her Oakland courtroom Friday, two days before Paramount had said it expected to close the transaction. Neither company may finalize the deal or begin integrating operations during the pause. The judge set a hearing on a preliminary injunction for Aug. 3.
The ruling delivers the first courtroom setback to a transaction that would end a century of rivalry between two of Hollywood's largest studios and place the Harry Potter, Batman, Mission: Impossible and Top Gun franchises, along with the CBS broadcast network and cable channels including CNN, TNT, MTV and BET, under a single owner. The states contend the combined firm would control nearly a third of major film releases and roughly a third of basic cable programming.
What the judge found
Martinez-Olguin wrote that the state coalition presented "compelling evidence that the combined firm resulting from the transaction will possess substantial market share in the wide-release theatrical distribution market," and that the public's "vital interest in antitrust enforcement" outweighed a short delay. Allowing the deal to close now, she added, would make it "extraordinarily difficult to unscramble the egg" if the court later moved to block it.
The suit, filed a week earlier by California Attorney General Rob Bonta and joined by Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington, invokes the Clayton Antitrust Act of 1914. The Justice Department's antitrust division cleared the transaction in June, and European Union and U.K. regulators had set a fresh provisional deadline of July 22.
Company response
Paramount said in a statement it was "grateful for the court's swift order," which "preserves the status quo while the Court considers the antitrust issues presented." The company added it is "confident the evidence will demonstrate that the State AGs' antitrust arguments are without merit as their alleged markets and claims of anticompetitive effects are without any basis in modern market realities." In court papers filed last week, Paramount called the challenge "one of the weakest merger challenges in modern antitrust history."
Warner Bros. Discovery declined to comment.
Jeffrey Kessler, Paramount's lead trial counsel, told CNBC last week that the states moved for a restraining order after the company signaled it intended to close as early as July 22. During Friday's hearing, Paramount attorneys offered to postpone closing until mid-August in a bid to avoid the order.
What comes next
The restraining order runs 14 days, and the states could seek another or press for a preliminary injunction at the Aug. 3 hearing, either of which would extend the pause. Bonta, who is also leading a separate suit that has stalled the $6.2 billion Nexstar-Tegna broadcast tie-up, called Monday's ruling "a critical first win in our case to ensure this megamerger never sees the light of day."
Paramount says it is on track to close by the end of September. Missing that deadline triggers a "ticking fee" of an additional 25 cents per quarter paid to Warner Bros. Discovery shareholders, worth roughly $650 million a quarter in cash, under the terms Paramount used to top Netflix's $83 billion offer. A collapse over regulatory grounds would trigger a $7 billion breakup fee owed by Paramount.
A sustained legal fight would test how far state enforcers can push against a Hollywood consolidation the federal government has already blessed.