Shares in both Paramount Skydance and Warner Bros. Discovery have received a significant boost over the past 24 hours after multiple states agreed to settle a lawsuit seeking to block the merger between the two Hollywood giants.
Most Read from Fast Company
The now-settled suit was the last major hurdle to Paramount’s takeover of Warner Bros. Discovery, which is now on track to close by the end of the month. Here’s what you need to know.
What’s happened?
Yesterday, California Attorney General Rob Bonta announced that his office, along with the AGs of eleven other states, had agreed to settle their antitrust lawsuit seeking to block the merger between Paramount Skydance and Warner Bros. Discovery (WBD).
As Fast Company reported in July, the lawsuit was brought by 12 states over fears that the merger would lead to fewer films produced each year, less competition, and more control by mega corporations over the types of content and editorial coverage that Americans see—particularly on cable TV.
The lawsuit, led by California Attorney General Rob Bonta, sought to block the merger on these and other grounds.
Now, however, Paramount, Warner Bros. Discovery, and the 12 states involved have settled the lawsuit.
Paramount Skydance is controlled by tech billionaire Larry Ellison and his son David Ellison, who is also CEO.
What does the settlement entail?
According to the California Department of Justice, the settlement includes several concessions from Paramount that aim to address many of the concerns the states that brought the suit had about the merger.
Notably, the settlement includes:
-
Paramount’s merged company agreeing to produce 30 films a year for the first two years
-
The merged company agreeing to produce 32 films a year for the subsequent three years
-
Paramount will spend an additional $1.5 billion above its 2025 numbers on U.S. film production over the next five years
-
The merged company will negotiate Paramount and Warner Bros. basic cable channels independently of one another for five years.
Announcing the settlement, Bonta said, “Today, we have secured a settlement that resolves our antitrust concerns of the Warner Bros./Paramount merger — concerns that the merger will lower output and increase prices — by guaranteeing massive investment in domestic film production and providing enforceable guardrails to help keep cable prices competitive.”
However, Bonta also clarified that the settlement doesn’t mean the states involved support the merger.
“Let me be clear: This settlement is not a vote of support for this merger. But we believe this settlement, which resolves our antitrust concerns in every market alleged in our case, protects competition and consumer choice, and puts workers’ needs, concerns, and futures first, is the best course of action,” the AG noted.
What does the settlement mean for the merger?
It means that it will almost certainly go ahead. The antitrust lawsuit brought by the 12 states was the last major hurdle to the merger, which federal regulators in the United States and other regulators worldwide have already approved.
It also means that Paramount will potentially save hundreds of millions in “ticking fees,” reports Reuters.
Such fees were monetary assurances Paramount gave to Warner Bros. Discovery if the merger was delayed. Paramount would have ultimately had to pay the equivalent of about $7 million a day to the final asking price if the merger was delayed beyond September 30.
Given that the antitrust lawsuit has now been settled, and the ticking fees still kick in if the merger does not go through by September 30, it’s very likely the merger will officially close by that date, which is just over a week away.
How have the markets reacted?
Yesterday, shares in Warner Bros. Discovery, Inc. (Nasdaq: WBD) shot up nearly 11% to $30.80 after news of the settlement was announced. Today in premarket, WBD shares are up a fraction of a percent to around $30.85 as of the time of this writing.
The reason WBD shares are likely not moving higher is that Paramount’s buyout agreement will require the company to pay $31 per share for Warner Bros., limiting any potential upside for investors from WBD’s current stock price.
As for Paramount Skydance Corporation (Nasdaq: PSKY), the stock dropped nearly 3% yesterday to $9.91. But this morning in premarket trading, PSKY shares have recovered about 2.3% to $10.14 at the time of this writing.
One reason why PSKY shares likely dropped yesterday on the news was that the settlement requires Paramount to spend an additional $1.5 billion on U.S. productions over the next five years, as well as assume other costs. That will put a strain on the company’s bottom line.
This post originally appeared at fastcompany.com
Subscribe to get the Fast Company newsletter: http://fastcompany.com/newsletters