A federal judge has paused Paramount's proposed merger with Warner Bros. Discovery after granting a temporary restraining order in response to an antitrust lawsuit filed by 11 U.S. states.
The order, issued by U.S. District Judge Araceli Martinez-Olguin, prevents Paramount and Warner Bros. Discovery from moving forward with the transaction for 14 days while the court considers further legal arguments.
The lawsuit was initially brought forward by California Attorney General Rob Bonta, who argues that the proposed merger would violate antitrust laws by giving the combined company too much power in the theatrical distribution market.
In her ruling, Judge Martinez-Olguin said the states had presented "compelling evidence" that the merged company would hold a substantial share of the wide-release theatrical distribution market. "On this combined firm market share alone, the Court is persuaded that it can presume the proposed merger is likely to violate antitrust laws," she wrote.
The order specifically prohibits Paramount and Warner Bros. Discovery "from closing or consummating the Transaction or taking any steps, directly or indirectly, to integrate or consolidate their operations pursuant to the Transaction."
A temporary restraining order is designed to preserve the status quo while a court considers the merits of a case. However, the judge suggested the plaintiffs had already made a strong initial case, writing that "the balance of equities, combined with the public's vital interest in antitrust enforcement, therefore tips sharply in favour of the requested injunctive relief."
The states argued that the emergency order was necessary because Paramount had not guaranteed it would refrain from closing the merger after July 22, around the same time the European Union is expected to announce its decision on the transaction. The deal has also faced pushback in the UK, so Warner Bros. Discovery might want to hope it still has Netflix's number handy as this merger happening as planned looks unlikely.
The ruling was not entirely unexpected. During a hearing on Friday, Paramount's lead attorney, Jeffrey Kessler, indicated that the company was prepared to voluntarily delay closing the merger for 28 days. Following the decision, Bonta hailed this latest ruling as an important early victory, stating, "This is a critical first win in our case to ensure this megamerger never sees the light of day."
The case also carries significant financial implications. Under the terms of the merger agreement, Paramount could be required to pay Warner Bros. Discovery a $7 million daily "ticking fee" for every day the transaction remains incomplete after September 30, a provision initially included to help secure the deal. Now, it could come back to bite Paramount in a big way.
Looking ahead, Judge Martinez-Olguin has scheduled an August 3 hearing to consider the states' request for a preliminary injunction, which could delay the merger indefinitely while the legal battle continues. Briefing deadlines have also been set, with the states' motion due Thursday, Paramount's opposition due July 27, and the states' reply scheduled for July 30.
The judge also rejected several of Paramount's arguments, noting that while the company challenged the market concentration data and presented an opposing economic expert, it failed to provide sufficient evidence showing the merger would not substantially lessen competition.
Stay tuned for updates as we have them.