Blueprint 31: Paramount's Path to Merger Trial

Reid Mercer: Obrigado. Grant: Hey everybody, welcome back to Blueprint. I'm Reid. Speaker 3: And I'm Grant. Reid, we've got a wild one today. Grant: Oh, it's a doozy. Paramount just hit pause on the Warner Bros Discovery deal, pushed it clear into 2027. Speaker 3: Voluntarily, that's the part that gets me. Grant: Right? No judge forced them into it this time; they walked in and offered the freeze themselves. Speaker 3: Which, either that's smart chess, or somebody already knows they're losing. Grant: That's exactly the fight we're having today. Speaker 3: We'll get into the trial date maneuvering too, November versus 2027, and there's a scheduling filing due Friday that might tell us everything. Grant: Then Grant's running the spreadsheets on this thing. Speaker 3: Somebody has to; there's a ticking fee involved, and it is not small money. Grant: Wait Speaker 3: Wow! Grant: till you hear who's getting paid to sit still while everybody else waits. Speaker 3: And that's before we even get to the writers! Grant: Right, the WGA just jumped into this fight too, and their move is a gamble in itself. Speaker 3: A frozen merger sounds calm on paper; on the ground, different story. Grant: That's really where Grant and I split today. Whether this slow down is healthy or just... Just deferred pain. Speaker 3: We're not going to agree on that one. Grant: We never do. Okay, first up, the deal nobody expected to freeze itself. Speaker 3: Let's see what they were really thinking. Grant: Okay, so get this. Friday, last hour of trading, a joint stipulation drops in Oakland Federal Court. Speaker 3: Mm-hmm. The TRO we covered last episode? Grant: Bigger. Judge Araceli Martinez-Olguin signs off and Paramount agrees not to close until five days after Amerith's ruling or June 1, 2027, whichever comes first. Speaker 3: Wait, wait. 2027? Grant: Yeah, and no integration, no consolidating operations. It's nothing while that clock ticks. Speaker 3: So the buyer just handed away time-that's the one asset you never get back. Grant: Here's what the release buried: Paramount volunteered this; nobody forced their hand. Speaker 3: They volunteered or realized they were about to lose the hearing anyway. Grant: The August third injunction hearing-gone; canceled; briefing deadlines and all; both the state AG's motion and the WGA's withdrawn, though they keep the right to refile. File, two weeks ago that TRO was twenty eight days already extended toward mid August! Right; now it's eleven months, by consent. Speaker 3: That's not a delay, that's a different deal. Grant: Paramount's own time line had them controlling Warner Bros by the end of September. CNN reported both PSKY and WBD shares slid on the news, Speaker 3: Wow! Grant: with Paramount touching a fifty two week low around eight dollars and twenty one cents. Speaker 3: eight twenty one. The market's not buying the victory lap either. Grant: So the question hanging over the whole thing is: Speaker 3: Is whether this is smart lawyering or a concession wearing a strategy costume. Grant: And every month that clock ticks there's a writer, a crew member waiting on an answer nobody's giving them. Speaker 3: That part bothers me more than the fee math. Grant: There's one filing July thirty first that might actually tell us which version is true. Speaker 3: So did Paramount's lawyers just call an 11-month wait a win, or are they just good at losing gracefully? Grant: So here's Paramount's line straight from the filing: "This was the plan all along-a trial on the merits, no short cuts." Sure, Speaker 3: convenient plan, considering three weeks ago they wanted a three day evidentiary hearing in August; the AG's call that "rust. Grant: Right, and now Deadline's got chief legal officer Makan Delrahim saying Paramount will push hard for a November trial date. Speaker 3: November. And on the other side? Grant: California AG Rob Bonta told CNN the state's want 2027. They're citing expert discovery, modeling ad markets, affiliate fees, all of it. Speaker 3: So the entire fight right now is a calendar fight. November versus April 2027. Grant: That gap is the whole ballgame, and LightShed's Rich Greenfield framed it as about as About as bluntly as you can get. Paramount's basically saying, "Fine, let's go straight to trial." Even a loss at the district court level gets you moving towards the Ninth Circuit, maybe the Supreme Court by twenty twenty seven. Speaker 3: Which is the tell, isn't it? You don't volunteer for a faster appeal clock unless you think you're losing the injunction fight anyway. Grant: That's the concession I'd grant you. Skip the written injunction ruling, and the states never get a citable opinion Speaker 4: on the merits. Grant: An incredible opinion to wave around for a year, that's real value to Paramount. Speaker 3: But walk it back to plain English; a buyer who calls an eleven month delay a win is a buyer who ran out of better moves. That's not strategy, that's spin with a filing number attached. Grant: Harsh! Speaker 3: Accurate—the math doesn't work if you're the one paying for every month you wait. Grant: Which is the actual test here, is skipping a likely injunction loss the fastest road to closing, or did they just trade a bad month for eleven of them? We get a real answer soon, right? Speaker 3: July thirty first.--There's a scheduling filing due, and whichever trial date the judge leans toward tells you which version of the story is true. Grant: And whichever version wins, somebody's writing checks the whole time. Speaking of writing checks, that's not a metaphor: there's an actual clock running, dollars per day, and it's next. Speaker 5: Oh! Speaker 3: Building on that stalemate, let's talk about who's actually getting paid to wait. Every quarter past September thirtieth, Paramount owes WBD's shareholders twenty five cents a share on top of the thirty one dollar cash price, which sounds small until you run the multiplication. I ran it: roughly six hundred fifty million dollars a quarter. Call it seven million dollars a day sitting there Wow. accruing whether the deal closes or not. That's a car depreciating in a garage you can't even Can't even open. Worse, it's appreciating for someone else while you pay the storage fee. Forbes ran the full math: over one point nine billion dollars if the delay runs its whole course to June. And behind that number sits the real threat: the seven billion dollar termination fee if the deal dies outright. So why doesn't Paramount just cut losses now? TheWrap had analysts on it. You'd need about eleven quarters of ticking fee payments to equal that breakup. Grant: Break Up Fee-That math argues for staying in the fight-and WBD's board has zero room to waive that fee even if they wanted to. Fiduciary duty locks them in. I've flipped cars with brutal holding costs, but at least I could sell the car whenever I wanted. Speaker 3: Right. Grant: WBD shareholders just wait and collect. Meanwhile, Paramount's own six billion in promised cost cuts sits frozen. Reid Mercer: Every quarter of delay is a quarter those cuts don't hit the ledger, so one side's balance sheet gets fatter while the other just bleeds cash for nothing yet, and the contract itself has a hard stop March fourth twenty twenty seven, with one automatic extension to June fourth twenty twenty seven. That's why June first is the number in the stipulation; the calendar's just running out. WBD's shareholders get a check for every day of this wait; writers don't get a dime. Which makes the WGA standing down from its own injunction fight worth explaining-especially after months of calling this merger illegal outright. Grant: DING! Reid Mercer: Shifting from Grant's fee math, the WGA just made its own bet-and it's a strange one. Wait-didn't they sue to kill this deal outright? Speaker 3: They did. [July fourteenth complaint, three markets, top theatrical screen writing, episodic TV and streaming, and overall deals. Their claim is the combined company becomes the single largest employer of writers in the country.] Reid Mercer: And now they're dropping their own injunction request? Speaker 3: Withdrawing the motion, joining the stipulation, their statement was almost lawyerly. They say they got what they asked the court for. Ford for-still called the merger unlawful-they just traded speed for a Fuller record. Reid Mercer: Full record meaning what? Speaker 3: Monopsony is brutal to prove fast. You need discovery, expert economists, real testimony on wage suppression across writers' rooms. A rushed August hearing was never getting them that. Now they get the Full case at trial. Reid Mercer: Harder case, but the one that Actually holds up if they Win it. Speaker 3: Right. Paramount's counter is the mirror image: Scale means Bigger development slates, more greenlights, more staffed rooms. That argument's headed for testimony now, not a coin flip hearing. Reid Mercer: Okay, but here's my problem with waiting for the better verdict: a writer who can't get staff this pilot season doesn't have eleven months. Speaker 3: FAIR. Reid Mercer: Every frozen hiring call at either company right now is a real income gap, not a future hypothetical. The guild suit is about jobs that might vanish later; the freeze is already costing jobs today. Speaker 3: Which is the split running through this whole deal-is a slower, better argued outcome worth a year nobody in a writer's room gets back? Reid Mercer: You don't get that year back, full stop. Speaker 3: And it might hinge on one filing: July thirty first, same scheduling document decides the merger clock. Turns out it decides the labor clock, too. Speaker 5: Whoop! Speaker 3: With everything frozen, here's what's actually happening: zero integration work is going on, no combined org charts, no synergy hunting, no closing day restructuring, none of it. Reid Mercer: Because there's nothing to integrate yet-two separate companies running independently. Speaker 3: Right, and Variety's got the memo that says exactly that. Ellison sent staff a note Monday calling it "business as usual" while admitting the uncertainty's been rough on people. Reid Mercer: Translation: Please don't quit before this resolves. Speaker 3: Basically, but Variety also reported something wilder: Reid Mercer: Wow. Speaker 3: some WBD executives are privately rooting for the States to win this suit. Reid Mercer: Wait, people inside the company Paramount's trying to buy hoping the deal dies? That's the report, because if there's no deal there's no restructuring to survive. I get the logic, but I'd push back on calling this a reprieve. And certainly is a cost nobody books on a balance sheet. I've held cars eight extra months waiting on a title issue, value bleeding out the whole time, and nobody wrote that check officially. Speaker 3: Sure, but don't confuse deferred with Cancelled. Paramount already cut close to 2,000 U.S. jobs chasing a $2 billion cost target that was pure Skydance integration math. Right, that was pure Skydance integration math. And that math hasn't moved an inch. Speaker 6: Mm-hmm. Speaker 3: The freeze protects WBD's org chart. It does nothing for Paramount's own spreadsheet. So the hallway calm at WBD is real but it's borrowed time. Paramount's cost problem is still sitting there waiting and it's not waiting on a judge to fix itself. Which brings us to the one date both buildings are circling: Friday. That's when we find out if this lands in fall or slides clean into spring. Shifting gears Friday July thirty first, is the filing everybody should actually read this week, the trial date filing. Right. Both sides submit a joint scheduling proposal and that's the first real signal on November versus Spring Twenty Twenty Seven. And if Paramount doesn't like the number they land on? Then watch for a renewed injunction motion if they push to speed things up, or an appeal if Judge Martinez-Olguin rules against Speaker 4: them. Speaker 3: The gents the deal outright. Reid Mercer: A Plan B stacked on a Plan B. Speaker 3: Pretty much. And if it goes to the Ninth Circuit, that appeal runway alone could push the real resolution into Twenty Twenty Eight. Reid Mercer: Twenty Twenty Eight? How long ago did they even announce this thing? Speaker 3: Long enough that everyone's treating June Twenty Twenty Seven like the finish line. Reid Mercer: When it might just be the starting gun for Round Two. Speaker 3: Exactly. Reid Mercer: Variety's rundown on the case raised something I hadn't weighed—a settlement still technically possible. Actual talks? Nothing points that direction yet, but it's possible partly because the Justice Department already cleared this deal back in June. This fight is state attorneys general and the WGA now, not Washington. Speaker 3: Which changes the leverage entirely. No single regulator to sit down with; you've got a coalition. and coalitions don't fold on one phone call. Reid Mercer: No, they don't. Speaker 3: My read for the week: That Friday filing—November on the calendar says Paramount's confident; spring says the framing was cover. Reid Mercer: And mine—the side that needs this clock moving fastest has the least say on how fast it actually moves. The court sets the pace; the states do; the writers do. Speaker 3: Paramount stuck watching a clock it doesn't own. Reid Mercer: That's the position they're in! Speaker 3: Zooming out, the whole fight might come down to one three-day hearing Paramount itself asked for. Reid Mercer: Right." Deadlines reporting Paramount wants three full days in August to lay out evidence before Judge Araceli Martinez-Olguin rules on the injunction. Speaker 3: Three days isn't a TRO argument any more; that's a mini trial. Paramount's building a full record early. Reid Mercer: Or Paramount figured a quick argument wasn't landing with the state AG's, and the WGA both swinging. Speaker 3: Either way, that's the tell on whether this becomes the leaner industry I keep predicting. Reid Mercer: There it is-the correction theory, right on cue: Guilty, fewer bloated combined companies, real pricing discipline instead of empire building. Pricing discipline's doing a lot of work for what's really Speaker 4: going on. Reid Mercer: Really thousands of writers and mid level staff frozen for eleven months, minimum. A correction that wipes out a whole income bracket of creative workers isn't a rounding error, I'll give you that. It's not a rounding error, it's the story. Every cable roll up since the nineties promised lean and efficient and the middle never fully came back. Some of it comes back, just not in the same building doing the same job; and that's the whole argument, isn't it?--whether that counts as recovery or just erasure with better talking points. Which is why that July thirty first filing outweighs everything else we've argued today. Fast track deal; this resolves before writers lose an entire hiring cycle. No fast track-everyone watching finds out exactly what frozen costs the people who can't afford to wait. Either way, somebody's betting they're right about people who don't get a vote in it. Grant: So THAT'S the tangled mess—Paramount voluntarily freezing itself out of this merger until twenty twenty seven—no judge forced that! Reid Mercer: Yeah, and that's my whole takeaway from the day: time's an asset, hand it away in a deal and you don't get it back. Ask any buyer who's waited too long to close. Grant: Right; and whether that smart legal strategy or spin with a filing number attached, we're clearly still fighting about it. Reid Mercer: We'll keep fighting about it next Tuesday. It's Tuesday, too, especially once writers start filling that frozen hiring pipeline. Grant: So, got a take on who actually wins this standoff? Email us at blueprint@hamada.com or tag us on social. Reid Mercer: And if today helped you see this deal differently, pass it to a colleague. New episodes every Tuesday. Grant: Thanks for hanging with us through all the legal back and forth. Reid Mercer: See you next week. Speaker 3: The End