California Attorney General Rob Bonta is expected to ask Paramount to divest some cable channels and keep its movie studio separate from Warner Bros.
California Attorney General Rob Bonta is expected to ask Paramount PSKY to divest some cable channels and commit to keeping its movie studio separate from Warner Bros. before he signs off on the $81 billion merger, people familiar with the matter have told The Wall Street Journal.
Bonta and Paramount Chief Executive David Ellison were scheduled to meet today (Monday, August 24) to discuss potential ways to settle the antitrust lawsuit California and 11 other states filed last month to block a deal that would combine the two entertainment giants.
Lawyers from both sides met Friday (August 21), according to people familiar with the matter. The purpose of that gathering was to lay out an agenda for today’s meeting, including discussions about the cable and motion-picture business, one of the people familiar with the matter said.
However, Bonta canceled the meeting late on Sunday evening, accusing Paramount of "playing games" and leaking what was discussed at Friday's meeting into the public sphere, something Paramount denies doing, with the company saying that they "share AG Bonta’s concerns about the public discussions and misreporting that has surrounded this deal" and that they "remain hopeful and stand ready to continue good faith discussions to resolve the Attorneys General suit and move forward with our plans for increased competition and increased output to the benefit of the talent and entertainment workers."
Leading up to Monday's meeting, people close to the talks between the two sides disclosed to the WSJ that they were doubtful that significant ground would've been made at the meeting.
The lawsuit filed by the states’ attorneys general argued that the merger would create too much concentration in the markets for theatrical movies and cable TV channels. Other areas of concern include film and television production and employment.
Pressure has mounted for Bonta and Ellison to reach an accord to allow the merger to proceed. In recent days, both California Gov. Gavin Newsom and Los Angeles Mayor Karen Bass have urged the two sides to find common ground.
Ellison and Paramount face significant financial costs if the deal isn’t closed soon. The deal with Warner includes a “ticking fee” with payments to Warner shareholders of roughly $650 million a quarter starting Oct. 1 and lasting until the transaction closes. If the trial goes on as scheduled, Paramount could be responsible for more than $1 billion in such fees.
Paramount has indicated it is prepared to leave California if it can’t reach an agreement with Bonta and the other states before the ticking fee goes into effect. Tennessee is the company’s first choice for a new home, people familiar with the company’s thinking have said.
Bonta has been adamant that he will fight the deal in court unless Paramount agrees to structural remedies. Paramount has committed to making 30 theatrical releases a year when the deal closes but hasn’t shown a willingness to sell assets or agree to management structures that would limit potential cost-savings and synergies.
A sale or spinoff of even a handful of cable networks could hurt Paramount’s bottom line and make it harder to service the nearly $80 billion in debt it will be carrying once the deal closes. While the cable-network business is struggling with cord-cutting and declining ad revenue, the channels still generate significant cash.
Paramount owns and operates the Nickelodeon whilst Warner Bros. Discovery owns and operates the Cartoon Network.
Bonta also wants Warner Bros.’ movie studio to remain a stand-alone operation with little interference from Ellison, people familiar with the matter said. Taking a hands-off approach to Warner Bros. is a nonstarter for Ellison, a person familiar with his thinking said.
The Paramount-Warner deal was approved by the Justice Department in June. It has also received approvals from the European Union, U.K., China and dozens of other countries.
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