Earlier this year, the streaming and entertainment industry experienced one of the most high-stakes mega deals ever, surprising industry observers. Not only is it historic in its size, but it’s also predicted to disrupt Hollywood and the media business as we know it.
After years of Warner Bros. Discovery ( WBD ) is struggling under the weight of billions of dollars in debt, coupled with declining viewership and intense competition from streaming platforms, the company is considering major strategic changes, including selling its entertainment assets to one of its rivals.
Several major players saw the potential of acquiring the media giant, and in December, Netflix announced that it would acquire WBD’s studios and streaming for $82.7 billion.
But in a surprise eleventh-hour move in late February, David Ellison-led Paramount emerged as the winner of that bidding war, offering $111 billion to acquire all of WBD’s assets, including studios, HBO, streaming platforms, games and TV networks like CNN and HGTV. Paramount was recently acquired by Ellison with significant support from his father, Larry Ellison – the chairman of Oracle, the sixth richest man in the world and a major Trump donor.
Paramount’s offer was approved by the US Department of Justice (DOJ) in June. But a federal judge just blocked the deal after a lawsuit filed July 13 by a coalition of 12 attorneys general.
Let’s break down exactly what’s going on, what’s at stake and what might come next.
What has happened so far?
It all started in October when Warner Bros. Discovery revealed that it was exploring a possible sale after receiving unsolicited interest from several major players in the industry.
The bidding process quickly became competitive, and Paramount and Comcast emerged as serious contenders, with Sovereign was initially regarded as the pioneer.
However, WBD’s board ultimately decided that an offer from streaming giant Netflix was the most attractive. Netflix bid $82.7 billion for Warner’s movies, TV and streaming alone.
Thus began the war of attrition. Paramount believed its offer of about $108 billion for all of Warner’s assets was superior to Netflix’s offer that focused only on studios and streaming. To sweeten the deal, Netflix amended its deal in January to an all-cash offer of $27.75 per Warner Bros. share. Discovery, further reassuring investors and paving the way for the deal to move forward.
Paramount persisted in its efforts to acquire WBD. But Warner’s board has repeatedly rejected its bids, citing concerns about Paramount’s heavy debt and the increased risk associated with its proposal, including concern about the array of investors financing Paramount’s bid, which includes sovereign wealth funds of Saudi Arabia, Qatar and Abu Dhabi. The board noted that Paramount’s offer would have saddled the combined company with $87 billion in debt, a risk they were unwilling to take at the time.
In January, Paramount filed a lawsuit seeking more information about the Netflix deal. A month later, the company tried to sweeten its deal announcing would offer a $0.25 per share “provision price” to WBD shareholders for each quarter the deal fails to close by Dec. 31, 2026. It also said it would pay a $2.8 billion breakup fee if Warner exits its deal with Netflix.
Then, in a final bid to secure a deal, Paramount raised its offer to $31 a share in February. This prompted the WBD panel to prolongs the discussions with Paramount about a possible deal, seeing it as a superior offer. Netflix refused to raise its offer and walked away from negotiations.
“The transaction we negotiated would have created value for shareholders with a clear path to regulatory approval,” Netflix co-CEOs Ted Sarandos and Greg Peters. he said in a statement on February 26.
In addition to the billions Paramount already has in debt, the company is also set to take on about $33 billion in debt held by Warner Bros. Discovery under the agreement. The deal will be is supported with a $54 billion debt commitment from Bank of America, Merrill Lynch, Citi and Apollo Global Management, as well as $45.7 billion in equity from Larry Ellison.
Regulatory hurdles and other concerns
In addition to assuming significant debt that creates a significant financial burden, Paramount faces several other obstacles to its deal with WBD that could affect the success of the transaction.
First, Ellison has warned of significant job cuts expected in the near future. There have already been widespread concerns among critics about potential job losses and lower wages.
Ellison is also a controversial figure in the industry, and his ownership of CBS News has been seen as a sympathizer and supporter of the administration of Donald Trump, whose father, Larry Ellison, is a major donor. Under Ellison’s ownership of Paramount, reports critical of the administration were withdrawn or given increased scrutiny by Ellison or the appointed head of CBS News, conservative provocateur Barry Weiss.
This led to some concern among employees at Warner-owned CNN. Trump has personally sought concessions from news outlets critical of him, including a $16 million settlement from CBSbefore the FCC of would approve Ellison’s takeover of Paramount. Before Netflix pulled out of the deal, Trump pressured the company to fire former Biden White House official Susan Rice from its board. He has publicly stated his intentions to bring CNN to heel under new owners.
Regulatory control is another hurdle. Such a large-scale merger has attracted the attention of lawmakers.
For example, California Attorney General Rob Bonda he said in a statement on February 26 that “these two Hollywood titans have not waived regulatory scrutiny – the California Department of Justice has an open investigation and we intend to be vigorous in our review.”
A day before Netflix folded, it was revealed that a a coalition of 11 attorneys general urged the US Department of Justice to review the merger over concerns it would stifle competition and raise subscription prices. This comes months after US Senators Elizabeth Warren, Bernie Sanders and Richard Blumenthal expressed their concerns to the Department of Justice’s Antitrust Divisionwarning that such a massive merger could have serious consequences for consumers and the industry at large. Senators argue the merger could give the new media giant too much market power, allowing it to raise prices for consumers and stifle competition.
Although the Justice Department approved the deal in June, a coalition of 12 state attorneys general filed a lawsuit on July 13 to block the merger. The lawsuit claims it would lessen competition and hurt movie theaters, cable distributors and viewers. Bonda leads the coalition, with Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon and Washington also joining.
In response, US District Judge Araceli Martínez-Olguín issued 14 day break.
When is the deal expected to close?
Paramount originally aimed to complete the acquisition of WBD as early as July. However, the transaction has now been temporarily halted until August 3, with a hearing set to assess whether the freeze will be extended further.
Stay tuned…
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