Paramount Nears a Warner Settlement; Four States Are Holding Out

On Friday the Wall Street Journal reported that Paramount Skydance had reached an advanced stage in settlement talks with California Attorney General Rob Bonta.

Shares of Warner Bros. Discovery and Paramount Skydance rose roughly 8% to 9% in after-hours trading, according to secondhand accounts.

On Sunday the same paper reported what is on the table. The same day, it emerged that four of the twelve states behind the suit have not signed on.

The deal has been frozen since July. The Justice Department cleared it in June; on July 13, twelve state attorneys general and the Writers Guild of America sued, arguing the merger would create excessive pricing power in entertainment, and a judge halted the transaction.

Federal clearance does not foreclose a state suit. The two gates are not substitutes for each other.

What Is on the Table

The commitment at the front of the list, per the WSJ, is a $1.5B investment in California production.

Alongside it: running the two studios separately for a period, keeping both California lots open, and making binding an earlier pledge to release 30 films a year after the merger. Missing that target could trigger penalties, including a sale of the Miramax stake.

A board to safeguard CNN's editorial independence, independent content monitoring, and the sale of certain cable channels are also on the list.

A spokesperson for the California AG would not confirm the details: "Potential settlement talks are confidential."

The $110B is not the price of the shares. WBD's 2.51 billion shares at $31 come to $77.8B; the gap is assumed debt. That distinction is the basis of an enterprise value calculation.

Why Eight Signatures Are Not Enough

Twelve states filed together, but there is a single federal case. One state settling does not close the file; the remaining plaintiffs' request for relief stands.

New York Attorney General Letitia James wants added protections for workers. Connecticut and at least two more states are holding their reservations.

So collecting eight signatures does not help Paramount. It needs twelve — or it needs the group of four to give up carrying the case alone.

The market read Friday's story as a settlement story.

Look at the calendar and it is a bond story.

The Mechanism: $7 Million a Day

The merger agreement carries a delay payment that switches on if the deal has not closed by September 30. It was put there to sweeten the bid against Netflix.

The money is not paid daily. The accrued amount is added to the $31 and handed to shareholders at closing.

In early September Paramount asked the court to make the plaintiff states and the Writers Guild post that sum as security, citing the federal rules of civil procedure and the Clayton Antitrust Act. The Justice Department filed in Paramount's support on September 15.

The Part That Does Not Fit

The states' answer is short: Paramount agreed to this payment itself and cannot hand someone else the bill for a clause it signed.

More to the point, the delay payment is made only if the deal closes. If the case goes against Paramount and the transaction dies, WBD shareholders receive none of it.

So Paramount wants to lock in, now, a cost it would bear only in the scenario where it wins.

That also makes the WBD shareholder's position odd. Delay works in their favor, but only if the deal eventually closes. The longer the case runs, the larger the per-share addition; if the states win, that sum and the $31 both disappear.

What Is Left

Judge Araceli Martinez-Olguin, who is hearing the case, will begin trial on the merits on March 2, 2027.

That date sits two days from the agreement's expiry on March 4, 2027. The agreement extends automatically once, to June 4, 2027.

The plaintiffs do not have to be proven right in court to win. Running out the clock is enough.

This article draws on the Reuters and Variety write-ups of the Wall Street Journal's Friday and Sunday reports, on Variety's and TheWrap's coverage of Paramount's bond motion and the Justice Department's filing, on TheWrap's explainer of the delay payment as written into the merger agreement, and on Warner Bros. Discovery's second-quarter 10-Q for the share count. The substance of the settlement talks rests on unnamed sources and has not been confirmed by the parties.