Blueprint 28: California vs. the ParaBros Merger

Reid MercerYou

GrantHey, everybody. Welcome back to Blueprint. I'm Reid.

Speaker 3And I'm Grant. Reid, we've got a stack one today.

GrantOh, it's a big one. Okay, so get this. California just hired a heavy-hitter antitrust lawyer.

Speaker 3Wait, for real? Who?

GrantRichard Parker, Milbank. According to MediaPlayNews, Rob Bontas' office brought him on specifically for the Paramount Warner Bros. Discovery merger fight.

Speaker 3So this isn't just posturing anymore?

GrantThat's the headline. And apparently close to a dozen states might... This might be drafting something together.

Speaker 3Which loops right back to that DOJ story everybody's been whispering about.

GrantPlot twist: we're getting into why career antitrust staff wanted to sue before leadership shut the file.

Speaker 3Yeah, and there's an Ellison interview in there, too, that apparently moved the needle. We'll get into how much.

GrantOh, you're going to love this part, because then there's the job side.

Speaker 3Right. L.A. County put numbers on the table, and, I mean, it's not small.

GrantGrant's going to do his spreadsheet thing on this one.

Speaker 3Guilty. I want to know if the math on these synergies actually holds up.

GrantWhich, spoiler, is where you and I are going to disagree today.

Speaker 3Probably. Plus, the clock's ticking. Literally. There's a fee structure driving all of this.

GrantWe'll get into all of it. Grant, kick us off.

Speaker 3Let's start with Bonta's new lawyer.

GrantRichard Parker just came on board at Bonta's office, Milbank, and he's got a serious trial pedigree on antitrust work. Parker—isn't he the guy who's gone after corporate giant and federal deals before? Exactly that resume. MediaPlayNews broke it today, and it lines up with what CNBC's David Faber said on air.

Speaker 4What'd Faber actually say?

GrantHe said the hire certainly increases the likelihood of a suit from the AG in California, direct quote. So this isn't just posturing for the cameras any more. That's the shift. A few weeks ago it was wait and see on this hundred eleven billion dollar deal. Now the read is a state suit is more likely than not. And it's not just California in the room. Nearly a dozen states, led by California and New York, reportedly drafting one joint complaint, could file within weeks. Weeks before the September close. That's the Calendar problem, Grant: you don't hire a trial lawyer like Parker for due diligence. Walk me through why that actually breaks the deal math, though. Paramount already has the DOJ sign off. Right: federal antitrust is cleared, but states sue under their own statutes, run their own discovery, get their own injunction. DOJ clearing it doesn't bind Sacramento or Albany. So September's not as locked as Skydance wants everyone to believe. Follow the money. Lawyers like Parker don't get hired for a press release fight.

Speaker 5Fair; but why now—why not back when the deal was first announced?

GrantBecause that federal clearance everyone's leaning on for September, it had cracks in it before Bonta ever picked up the phone.

Speaker 5What kind of cracks?

GrantBig enough that the DOJ's own antitrust lawyers reportedly weren't finished making their case when leadership pulled the plug.

Speaker 5Wait, their own staff didn't sign off?

GrantBuilding on that, here's the part that should worry Paramount's lawyers.

Speaker 3The clearance itself?

GrantVariety reported the career antitrust lawyers spent eight months on this, went through more than two million documents.

Speaker 3And?

GrantDOJ leadership closed the investigation on June 12th, before those lawyers could even file a formal recommendation.

Speaker 3They didn't wait for the memo?

GrantNope. And Variety found that staff were leaning towards recommending a lawsuit. suit to block the whole thing.

Speaker 5So the people who spent eight months buried in it wanted to sue, and leadership pulled the plug first?

GrantThat's the headline; here's the actual story: there's a detail floating around about why leadership moved so fast.

Speaker 5Go on.

GrantSenior officials reportedly viewed a two hour interview with David Ellison as settling the staff's core worry:

Speaker 5Which was .

Speaker 6. .

Grantthe debt load on the combined company.

Speaker 5Two hours versus eight months of career lawyers building a . . . Building a case?

GrantThe math doesn't math on that trade, honestly. What happened when that got out? Elizabeth Warren called it corruption, no hedging.

Speaker 5And DOJ fired back?

GrantStanley Woodward at DOJ publicly disputed that account.

Speaker 5Shocking!

GrantRight? But that's why Bonta's team is treating this clearance as an opening, not a closing.

Speaker 5Because if DOJ's own staff wanted to block it-

GrantStates get to make that exact case in court.

Speaker 5And that debt number is about to get a lot more specific.

GrantSpeaking of specifics, Los Angeles County just put hard numbers on exactly what staff were worried about. Grant, forget the lawyers for a second. The L.A. County just did the AG's homework for them: the Department of Economic Opportunity put a number on this.

Speaker 5What's the number?

GrantTwenty four hundred ninety five jobs in greater L.A., about six thousand globally. That's Deadline's own reporting on the June eighteenth filing. Ugh!--my mostly wear. Corporate, tech, real estate, the duplicative stuff, the overlap you'd expect when two companies merge back office functions.

Speaker 5Okay, but that's the projected synergy math working exactly as designed-every merger this size eats jobs in the overlap. That's not a scandal, that's a spreadsheet.

GrantSure, except the county report also went after Ellison's actual jobs pitch-nineteen Paramount and Warner theatrical releases in twenty twenty five. five, only one was principally shot in California, one battle after another filmed up in Eureka.

Speaker 5Wait, wait-only one out of nineteen?

Grantone, per the Hollywood Reporter's coverage of that same county filing. Everything else-Georgia, Louisiana, the UK, Bulgaria.

Speaker 5So the thirty films per year promise doesn't actually mean thirty films employing California crews.

GrantThat's the gap the report is pointing at. Now here's the part that should worry the equity holders too-the debt.

Speaker 5Go.

GrantParamount itself disclosed roughly $79 billion in net debt on the investor call. Reporting since has pegged the leverage at close to seven times the company's combined operating profit.

Speaker 5Seven times? That scene leveraged buyouts at that ratio implode. RJR Nabisco territory.

GrantRight, and that's the tension. You can't run seven times leverage. Sometimes leverage and fund a thirty film theatrical slate and avoid the layoffs the county is flagging. Pick two!

Speaker 5I'd push back slightly. Companies delever, Zaslav did.

Reid MercerDid it at WBD with asset sales. It's painful, not fatal.

GrantPainful for whom, though? Because Deadline's own framing here is blunt: they're calling this report a direct boost to the looming AG lawsuit.

Reid MercerBecause now the states have a number, not a hunch.

GrantExactly. Twenty four hundred ninety five jobs and a debt to profit ratio. That's not rhetoric, that's exhibit material.

Reid MercerAnd exhibits are exactly what you need to get a judge to sign an injunction. And an injunction.

GrantWhich is the mechanical question we're getting into next; because clearance from DOJ doesn't actually stop a state from suing. Building on that, let's talk about the clock, because this is where the money gets scary.

Reid MercerScarier than two thousand four hundred ninety five jobs?

GrantDifferent kind of scary. Deadline's reporting on this deal lays out that states don't need DOJ's permission to sue-independent authority even after federal clearance.

Reid MercerWait, so Bonta could file even though the feds already blessed us?

GrantExactly. Federal clearance and state antitrust law run on separate tracks. Antitrust practitioners tracking this case have been saying that for months. Months.

Reid MercerOkay, but that just delays things, right?

GrantWhat's the actual price tag? Deadline lays it out. This deal is targeted to close by the end of Q3. Miss that and a ticking fee kicks in. 25 cents a share per quarter.

Reid MercerThat doesn't sound like much.

GrantIt's roughly $6.9 million a day. Every single day past September 30th.

Reid MercerDog, $6.9 million a day?

GrantA day.

Reid MercerWow.

GrantThink about that. Against a lawsuit that could take a year to... gear to resolve!

Reid MercerHow long could a state case like this actually drag on?

GrantCases like this typically take six to eighteen months before a ruling. Multiply that by the daily fee and you're talking real money before anyone sees a courtroom.

Reid MercerWhoa, that's a car sitting on a dealer lot, racking up floor plan interest and storage fees every month nobody's driving it, except this lot charges Ferrari money.

GrantAnd it gets worse. Deadline also flags a $7 billion termination fee if the whole thing collapses over regulatory issues.

Reid MercerSeven billion. So even walking away is expensive.

GrantThat's the number that should worry Ellison's board more than the jobs report. Obama's report.

Reid MercerWhich tells you why Paramount already retained Jeffrey Kessler, right? You don't hire a litigator like that for fun.

GrantNo, you hire him because you're planning for a courtroom fight.

Reid MercerMm, reminds me of Nexstar and Tegna a few years back.

GrantRight, FCC signs off, everyone thinks it's done, and then a state suit lands and blows up the timeline anyway.

Reid MercerSo the FCC saying yes doesn't mean California can't still say no.

GrantThat's the collision course we're on-federal green light, state red light, and a meter running every single day in between.

Reid MercerSomebody on Edison's team better be watching that calendar like it's a margin call.

GrantAnd that meter is exactly why the six billion dollar savings pitch matters so much right now.

Reid MercerBecause every dollar he claims to save has to survive the same fight.

GrantSo let's get into where those savings actually come from. from Building on that debt math, let's flip to the savings side. Ellison's team projects more than $6 billion in synergies, mostly out of duplicate corporate, tech and real estate roles.

Reid MercerSame buckets lay out county flag for job losses.

GrantRight. One column calls it savings, the other calls it layoffs. Same line item, two labels.

Reid MercerWe watched this before. When Skydance bought Paramount last year, Deadline reported over 2,000 jobs disappeared, a lot of them right here in LA.

GrantSure, but that was one company finding its footing post acquisition. This is a much bigger combination with real overlap to cut.

Reid MercerOverlap that keeps stacking though. Two thousand jobs on Deal one, twenty five hundred projected in LA alone on Deal two, six thousand worldwide.

GrantOkay, stacking is carrying a lot of weight in that sentence.

Reid MercerFine-same executive team, same leaser, pulled twice in two years.

GrantSix billion in savings against a one hundred eleven B Seven billion dollar deal is real progress on debt. Wall Street wants that math to work.

Reid MercerDeadline just quoted LA councilmember Nithya Raman on exactly this: she's running for mayor, and she says the merger's math only works through mass layoffs? Word for word. And she pointed straight at the Skydance-Paramount losses as a proof.

GrantI get the politics. But every big media merger since the Time Warner days has trimmed overhead. That's consolidation doing what it does. Except it's not some faceless conglomerate this time. It's the same families twice in two years. I see a company getting lean enough to fight Netflix, you see a middle class getting hollowed out job by job. Same spreadsheet, two different books. Fair. Neither of us disputes the numbers, just what they add up to. And that fight's about to run into an actual calendar, several deadlines landing almost on top of each other. How soon? Soon enough you'll want to write these down. Shifting gears, there's an actual calendar now. No more guesswork. Finally, numbers I can put in a spreadsheet instead of a gut feeling. Today's the day, July seventh, the European Commission's phase one deadline on this merger lands right now, and if Brussels bumps it to a phase two review, that overlaps directly with any state lawsuit filing here. Exactly. Two fronts, same window. The UK's Competition and Markets Authority has until October

Speaker 6nineteen.

GrantUntil August seventh to decide if it wants its own deeper look.

Reid MercerSo Brussels, London and Sacramento are all circling the same $111 billion deal within about a month of each other.

GrantI doubt Ellison picked that timing on purpose.

Reid MercerNobody schedules a headache like that on purpose.

GrantAnd LA County's fuller one hundred twenty day breakdown, the real detailed one, lands mid August, right as any state suit would be escalating.

Reid MercerSo if you're running a studio right now,

Speaker 3Right.

Reid Mercerforget the press releases.

GrantWhat do you watch instead? The actual filing date and which states beyond California and New York sign their name to it. A joint complaint from a dozen states hits different than California going solo. March August seventh. That's when we find out if London wants blood too. Main calendar set, let's see who moves first. All right, so that wraps the show. Bonta bringing in a heavy hitter like Richard Parker tells you this fight's just getting started.

Reid MercerYeah, and that DOJ time line still bugs me. Leadership closing the case before their own lawyers could object, that's the part I can't shake.

GrantYou've said that about six times today.

Reid MercerAnd I'll say it again in August.

GrantFair. Look, whatever side you land on.

Reid MercerTodd, the real lesson is that regulatory approval isn't the finish line. It's just the next round.

GrantExactly. Deals like this get decided in courtrooms as much as boardrooms.

Reid MercerGot a take? Email us at blueprint at heymeadow.com or find us on social.

GrantAnd if this changed how you see this merger, send it to a colleague.

Reid MercerWe're back Tuesday with whatever Bonta's office does next.

GrantThanks for hanging out with us.

Reid MercerSee you next week.