Paramount expected to overcome regulatory hurdles, despite DOJ probe
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Now that Paramount Skydance has won the bidding war for Warner Bros. Discovery, it faces a complicated road of regulatory approvals from governments across the globe.
Why it matters: Antitrust experts do not expect regulators in the U.S. or abroad to block the deal, but the approval process will likely be long and cumbersome, which could impact how quickly the company can realize synergies and growth opportunities.
State of play: The Justice Department is currently probing the merger, a source familiar with the matter confirmed to Axios.
- That is not unusual for a merger of this size, and antitrust experts do not believe the DOJ will ultimately sue to block the deal. But the approval process for this particular transaction has been somewhat atypical, given the savvy of Paramount's policy team.
- Paramount, whose regulatory efforts are being led by former DOJ antitrust chief Makan Delrahim, filed pre-merger notifications required under the Hart-Scott-Rodino Act to regulators before it signed a merger agreement with WBD, which is unusual but legal.
- "The process so far has not been orthodox," said Samuel Weinstein, a former DOJ antitrust attorney and now a professor at Cardozo School of Law.
- The DOJ declined to comment. Paramount did not respond to a request for comment.
How it works: The law typically mandates a waiting period for antitrust review before a deal closes. The waiting period varies based on whether the deal is all cash versus cash and stock.
- Paramount announced on Feb. 19 that it cleared a 10-day waiting period after responding to a second request for information from the DOJ regarding its hostile takeover bid for WBD.
- Typically, the HSR notification is filed after a merger agreement is signed. But Paramount expedited the submission, which gives the DOJ less time to sue to block the deal before the transaction is legally allowed to close.
- The DOJ could still sue to block the merger, but it becomes harder to do so after the deal closes, said Lee Hepner, a California-based antitrust lawyer and senior legal counsel for the American Economic Liberties Project.
Zoom in: Regulatory filings for Paramount's previous bids indicated that around 60% of the $40 billion in equity funding came from sovereign wealth funds from Saudi Arabia, Abu Dhabi and Qatar.
- It hasn't confirmed whether and to what extent those funds are involved in its latest bid, but presumably they are still contributing billions to the deal.
- To ease national security risk concerns, the company promised last year that its foreign partners wouldn't have any voting or governance rights.
- The Committee on Foreign Investment in the U.S. is responsible for reviewing big deals for national security risks. It operates under the Treasury and is mostly made up of Cabinet members, but the president has the power to ultimately decide whether a deal should be blocked.
- Antitrust experts do not expect CFIUS or Trump to block this deal.
Zoom out: Each country has a different size threshold for deals that would require regulatory review.
- Most countries where Paramount would have enough market share to warrant a review are in Europe.
- The European Union needs to approve the deal as do many of its individual member states. It's atypical for member states to block approval if the EU ultimately green-lights it.
- While antitrust experts expect the EU to clear the deal, regulators there typically take longer to review mergers than in the U.S.
Yes, but: Longer approval processes overseas could buy the DOJ and state attorneys general time to assemble a case, if they think the deal violates federal or state antitrust laws.
- While some state attorneys general have individually spoken out against the deal, it's likely that a lawsuit to block it would come from a coalition. States have found success banding together and combining enforcement resources to sue to block big deals.
- California Attorney General Rob Bonta has already said that the state's Department of Justice has an opened investigation into the deal and that "we intend to be vigorous in our review."
Reality check: While some Democratic state attorneys general may be politically motivated to sue to block a deal out of concerns about Paramount's plans for CNN or the Ellison family owning too much media, they would need to present a compelling antitrust argument for a lawsuit to hold up in court.
- For the states, "the most viable antitrust argument is reducing five studios to four, and having fewer bidders for services," said Weinstein. That could impact jobs and theatrical distribution.
- If the DOJ sued to block the deal, which legal experts deem unlikely, it would be expected to make a similar argument.
Context: Because the combined company will own two major U.S. movie studios that distribute films in China, it's likely Paramount will need approval from Chinese regulators, which is something Netflix wouldn't have had to worry about.
What to watch: Paramount is on a financial time clock. Its merger agreement with WBD includes a "ticking fee" of 25 cents per share, per quarter (or around $650 million per quarter) if the deal does not close by Sept. 30.
