Paramount settles with US states in big step towards closing Warner Bros merger

Fresh updates from the financial markets indicate that Paramount Skydance Corp. has touched a settlement with 12 state attorneys general over lawsuits challenging its proposed acquisition of Warner Bros. Discovery Inc., clearing a key hurdle for the firm to complete the historic $110 billion deal.

California Attorney General Rob Bonta announced the settlement at a press conference on Monday.

The settlement includes the creation of independent editorial boards for CNN and CBS, and a $30 million penalty per film for any shortfall against Paramount's pledge to release 30 movies annually, the source stated.

Paramount, Warner Bros Discovery and California Attorney General Rob Bonta's office did not immediately respond to Reuters requests for comment on the settlement.

The settlement caps months of regulatory and legal wrangling over a deal that would dramatically concentrate power across Hollywood's film, TV, streaming and news businesses.

By securing concessions aimed at preserving newsroom independence and maintaining movie production, Paramount appears to have addressed some of the concerns, bringing the two firms closer to completing a merger that will create one of the world's largest media and entertainment groups.

Shares of Paramount were up more than 8% on Monday, while Warner Bros Discovery surged more than 10%. Reuters first noted on Friday that Paramount and the states could settle as soon as the weekend. WRITERS GUILD CHALLENGE STAYS

While Trump administration regulators cleared the deal, a coalition of 12 state attorneys general, led by California's Rob Bonta, sued in July to block the merger, arguing it would reduce competitive pressure and create a media behemoth with the power to mobilize prices in movies and television.

The firms stated earlier this year the merger will mean $6 billion in savings, through moves including cost cuts that would likely affect jobs across Hollywood as well as the CNN and CBS newsrooms. The combined firm is anticipated to hold $80 billion in debt.

A settlement with the states will help Paramount avoid a $7 million-a-day "ticking fee" it owes Warner Bros shareholders for each day the deal does not close past September 30.

But it does not fully remove Paramount's obstacles to acquiring Warner Bros Discovery. The Writers Guild of America has additionally sued to stop the deal, arguing it would decrease pay and worsen working conditions for film and television writers.

The union warned in July that a combined Paramount-Warner Bros entity would have "both the incentive and the ability to softer costs by suppressing writers' wages and reducing output."

"The final hurdle will be some trade unions that additionally have a similar lawsuit outstanding, but they'll be hard pressed to hold up this deal without paying the bond that Paramount requested," Morningstar market observer Matthew Dolgin stated, referring to the $1.88 billion bond Paramount requested to address the costs of delay in closing the deal.

"On the merits, I think the unions would have a very low probability of winning their case, so I'd expect that to get settled additionally," Dolgin further noted.

The Writers Guild of America did not immediately respond to a request for comment.

Antitrust regulators in other jurisdictions globally, including the European Union and Britain, have already cleared the deal.

A cleared Paramount-Warner deal suggests regulators may be more open to media consolidation as firms scale up to compete with Netflix and Walt Disney. It additionally raises fresh questions around concentration in news, sports and entertainment.

30 FILMS PER YEAR AN EASY TARGET TO HIT

Paramount has agreed to pay $30 million in penalty for each film that falls short of its 30-movies-a-year target, per the source.

But market watchers say hitting that target is hardly a tall order for the combined entity, which would have franchises ranging from the DC Universe and Harry Potter to the Transformers and Star Trek under one roof.

Paramount and Warner together are anticipated to release 28 films this year based on current schedules.

"To get there, all it takes is additional capital. I don't expect any problem meeting the letter of the agreement, even if that means the last few to round out to 30 are released more to meet this requirement than what the firm might choose to do otherwise as the best use of capital," Morningstar's Dolgin stated.

Paramount should additionally be able to buy films to distribute rather than produce itself, if needed, in order to meet the agreement, Dolgin further noted.