States sue to stop Paramount-Warner Bros blockbuster merger

California Attorney General Rob Bonta is one of several attorneys general seeking to stop the merger of Paramount and Warner Bros. Discovery. Bloomberg via Getty Images/Bloomberg hide caption

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A dozen states, led by California, are suing to block Paramount from buying Warner Bros. Discovery in a Hollywood mega-merger that would unite some of the nation's largest movie studios, television newsrooms, and other entertainment properties.

"The unlawful merger of these two entertainment behemoths would lead to higher prices, lower quality, and less content for film and television, harming movie theaters, basic cable distributors, and ultimately, audiences on every sofa and movie theater seat in the U.S.," California Attorney General Rob Bonta said in a statement announcing the suit , which was filed in federal court in California's Northern District.

The deal would give a wealthy family that has taken pains to show its allegiance to President Trump the effective ownership of the companies' competing movie studios, streamers (Paramount+ and HBO Max), sports programming (CBS Sports and Turner Sports) and news divisions (CBS News and CNN) as well as a suite of cable channels, such as Comedy Central, VH1, MTV, TNT, TBS, HGTV and Discovery, among others.

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The president has repeatedly praised Larry and David Ellison, the digital titan and his son who are the controlling owners of Paramount. And he has publicly urged the sale of Warner's CNN to new owners.

"We're trying to have CNN go in a normal path," Trump told CNN anchor Jake Tapper yesterday at the end of an interview about the late Sen. Lindsey Graham.

In his statement Monday, Bonta said, "With this lawsuit, California and our sister states are fighting for free and fair markets, not rigged markets. America has no kings in government or our economy."

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Paramount is inviting in sovereign wealth funds from Saudi Arabia, Qatar and the United Arab Emirates as major investors who will forego voting rights. The financing proposal also envisions that the company will take on $80 billion in new debt. That will assuredly trigger major cuts throughout the combined company. Warner dramatically reduced its own debt after slashing budgets, but is still tens of billions of dollars in the red, which helped set the stage for Paramount's unsolicited bid.

Bonta sees "red flags"

In late June, Bonta told MS NOW's Jacob Sobroff that the deal presented "red flags in the air everywhere." The acquisition is valued at approximately $111 billion, including debt and major (though nonvoting) investment stakes from Saudi and other sovereign wealth funds. Bonta has armed his office for potentially costly legal battles by hiring a new batch of lawyers, including some who left the U.S. Justice Department after Trump took office a second time. He also secured new funds from the state legislature specifically for antitrust enforcement.

The other states involved in the lawsuit are Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington. An overlapping cadre of Democratic state attorneys general have sued to block the takeover of local TV giant Tegna by Nexstar, the nation's largest owner of television stations. A federal judge in Sacramento has put the full integration of the two station groups on hold in advance of a trial that is scheduled to be heard a year from now.

Paramount has argued that the entry of streaming giants such as Netflix, Amazon and Apple into entertainment has altered the landscape, rendering such antitrust concerns obsolete. Anticipating the same vast shifts, Disney swallowed up most of Fox's Hollywood holdings in 2019.

Any delay caused by the attorneys general could prove costly, securities filings show . Starting Oct. 1, Paramount has to pay Warner shareholders a "ticking consideration" of roughly $650 million for every 90 days the deal is set back. If the deal is not consummated by next June 4, Paramount will have to pay Warner $7 billion.

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Though Paramount's new chairman and CEO is Hollywood producer David Ellison, a past financial donor to the campaigns of Presidents Barack Obama and Joe Biden, the takeover bid was financed and guaranteed by Ellison's father: Oracle co-founder Larry Ellison.

Oracle co-founder Larry Ellison, a friend and adviser of President Trump, is backing Paramount's $111 billion plan to buy Warner Bros. Discovery. Andrew Harnik/Getty Images/Getty Images North America hide caption

Larry Ellison is one of the richest people on Earth. He is also a Trump supporter and adviser — both formally and informally — serving, for example, on a board counseling the White House on artificial intelligence. Last fall, Trump made good on his plans to grant Larry Ellison and Oracle a controlling stake in TikTok's U.S. operations.

The Ellisons took over Paramount just last summer, making concessions to Trump's chief broadcast regulator and earning the president's vocal support.

"The Ellison family, two great people, great people," Trump said in March, ahead of a dinner David Ellison threw in Trump's honor. "It's a great family."

David Ellison hired a new editor in chief for CBS News: Bari Weiss, founder of the center-right The Free Press. She arrived with a record of deeming mainstream media, including CBS News, to be too reflexively "woke" and anti-Trump. Her effort to reshape coverage has been met with a series of controversies, including firings and fiery resignations by CBS journalists accusing her of bias, which the network and Weiss deny. Bonta's announcement did not focus on the combining of CBS News and CNN.

Given that Oracle provides the software skeleton on which much of the nation's commerce and government runs, and that the Ellisons now control major media platforms and the digital data they gather, the family has the ability to create a vast reservoir of information about how people act online.

Trump's remarks on the Paramount-Warner deal — and especially on CNN's fate —represent a sharp break from past administrations. Predecessors both Republican and Democrat tended to respect the independence of regulators in the antitrust division of the Justice Department and the Federal Communications Commission.

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Makan Delrahim, who is now Paramount's chief legal officer, ran the Justice Department's antitrust division during Trump's first term. He led an ultimately unsuccessful effort to block AT&T's takeover of TimeWarner, the precursor company to Warner.

Makan Delrahim was U.S. assistant attorney general for the Justice Department's antitrust division during President Trump's first term. He is now the chief legal officer at Paramount. Bloomberg/Bloomberg via Getty Images/Bloomberg hide caption

In retrospect, AT&T may have preferred Delrahim to prevail; the deal was brutally panned by analysts and the stock market. The telecom giant unloaded the media properties less than four years later. They were taken over by Discovery in a deal that burdened the new cable TV conglomerate with tens of billions of dollars of debt. Warner CEO David Zaslav was able to reduce it significantly, but not overtake it, and announced plans last summer to split the company in two in seeking to get ahead of an undesired offer from Paramount.

The Warner board initially struck a deal with Netflix valued at nearly $83 billion for much of the company, not including CNN and other basic cable channels. Then Paramount raised its offer for the whole company and Netflix pulled out rather than compete .

While the top British regulator has expressed qualms too, signaling a possible review that could delay the process, Paramount has won approval from the Justice Department and many regulators abroad. The Justice Department approved the acquisition last month after an eight-month review.

The Wall Street Journal reported senior officials at the Justice Department fast-tracked its process for approval before career attorneys, who were weighing filing suit to block the deal, could intercede. The outgoing antitrust chief denied that in an interview with Politico .

The FCC has not yet signed off. It is involved because Paramount holds broadcast licenses for the 28 local television stations it owns. The FCC is led by Brendan Carr, a Trump appointee and vocal ally who has endorsed Paramount's bid.

"I think this is a good deal, and I think it should get through pretty quickly," Carr told CNBC back in March.

Paramount has made minor concessions to try to win approval from officials in Europe. The European Union undertook formal reviews of both the consolidation of assets and its reliance on foreign investors , which are set to conclude soon.

The litigation from the states could tie Paramount up for far longer.