Paramount Defends Itself Against 12-State Lawsuit Seeking To Block $110B Warner Bros. Discovery Merger

• The media company states that blocking the merger will halt vital investments in premium content and harm Hollywood workers by shielding tech giants like Netflix.
• Led by California, a coalition of 12 states filed a federal lawsuit alleging the historic merger violates the Clayton Act.
• Regulators at the U.S. Department of Justice previously cleared the deal, but the state-level legal roadblock threatens to delay the transaction.

Paramount Skydance Corporation (PSKY) on Monday pushed back against a newly filed multi-state lawsuit aiming to block its historic $110-billion acquisition of Warner Bros. Discovery Inc. (WBD), warning that delaying the transaction will only harm entertainment workers and benefit dominant Silicon Valley tech platforms.

The response came shortly after a coalition of 12 states, spearheaded by California Attorney General Rob Bonta, filed a lawsuit in the U.S. District Court for the Northern District of California. The states claim the mega-merger would decimate competition, lower wages and drive up prices for consumers.

Paramount rejected the allegations entirely, stating that the challenge defies "evidence-based antitrust enforcement" and misrepresents the realities of the modern media landscape.

"The lawsuit filed by the state attorneys general, in the most generous light, reflects a fundamentally flawed application of the antitrust laws and is wrong on both the facts and the law," Paramount said in a statement. "The practical effect of this lawsuit is to shield those dominant streaming platforms like Netflix and technology companies from much-needed competition."

Paramount Skydance shares were up about 2.4%, while Warner Bros. Discovery shares rose about 2.6% at the time of writing. 

Paramount Warns Of Harm To Hollywood

Paramount stated that combining forces with Warner Bros. Discovery (WBD) is the only path forward to build a well-capitalized, "creative-first" entity capable of competing against scaled subscription video-on-demand (SVOD) leaders like Netflix, Disney, and Amazon.

According to the company, the transaction is designed to increase production output, expand theatrical releases, and create more jobs for organized labor. Paramount cautioned that state intervention would stall these economic benefits, noting that technology disruptions have already cost California tens of thousands of entertainment jobs in recent years.

States Allege Monopolistic Control 

Despite federal approval, state attorneys general argue that the consolidation creates an illegal monopoly under Section 7 of the Clayton Act. The suing coalition includes Arizona, California, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington. 

California Attorney General Rob Bonta led a coalition of attorneys general from 11 other states in challenging the proposed transaction. The coalition alleges the deal would combine two of Hollywood's five major film distributors and two of the five largest owners of basic cable channels, eliminating direct competition between the companies.

“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.,” said Attorney General Bonta in a statement. 

PSKY, WBD Stock: Retail View 

Retail sentiment on Stocktwits around PSKY and WBD trended in ‘extremely bullish’ territory at the time of writing.

PSKY stock is down 29% year-to-date, while WBD stock is down 5.5%. 

The State Street Communication Services Select Sector SPDR ETF (XLC) is up 6% over the past 12 months, while the iShares Core S&P 500 ETF (IVV) is up 20%.

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