Blueprint 32: The Merger Trial Date Fight

Reid Mercer: Woo! Grant: Welcome back to Blueprint. I'm Reid, sitting across from Grant, and man, the Paramount Warner Brothers story just keeps giving us gifts. Speaker 3: Gifts, right. This one's more like a ticking clock somebody duct-taped to a merger. Grant: That's literally where we're headed. Paramount filed for a November 4th trial date. States and the WGA want April 2027. Speaker 3: Six months apart, and whoever wins that scheduling fight basically wins the leverage game before anyone sets foot in court. Grant: Oh, you're going to love this part. I've got the math on what delay actually costs Paramount day by day. Speaker 3: It's not pretty, and you've been tracking this. Does Newsom's office leaning on... Leaning on the A.G. actually changed the settlement math at all? Grant: Yeah, there's a Wall Street Journal report on that we need to sit with. Speaker 3: Plus, the WGA has got his own lawsuit running parallel to all this, which nobody's talking about enough. Grant: And by the end, we're asking the real question: does David Ellison actually have a walkaway price? Speaker 3: Right, or is he too far in to blink now? Grant: We'll get there. But first, walk me through why this filing on July 31st is the whole. The whole ball game. Speaker 3: Happy to; the States and Paramount actually agree on almost nothing here. Grant: To dates November fourth April fifth nineteen twenty seven; same case, same judge, same merger, and Paramount and the States can't agree on the calendar. Speaker 3: That's not a scheduling dispute, that's a five month standoff dressed up as paperwork. Grant: TheWrap in Bloomberg reported both sides filed this jointly Friday at the judge's own request: Judge Araceli Martinez Olguin in Oakland, per ScreenDaily. Paramount wants twelve days starting November In November, the state's AGs and the WGA want 12-15 days starting April with a ruling by June 2027. Speaker 3: So neither side is picking the date. She is. Grant: Exactly which makes that scheduling order the single most valuable document in this whole fight right now. Speaker 3: Here's what I learned in fifteen years of deal work: when a buyer suddenly wants to close in thirty days instead of ninety, you don't ask politely; you ask why. "Fast" means either the price is soft or something is decaying underneath. One of those two things is always true. Grant: Paramount's sports person called the April date a stall-waiting tactic. "tactic," said November is plenty of time for discovery." Rob Bonta is framing it the opposite way: a straightforward antitrust case that deserves a real look, not a rushed one. Speaker 3: Everyone is citing due process, everyone is citing discovery windows, nobody saying the word that's actually on both their minds, which is money. Every week this drags out somebody's balance sheet gets worse. Grant: That's the reveal buried in a filing that reads like housekeeping: Keeping: Whoever wins the calendar wins most of the leverage before a single witness gets sworn in. Speaker 3: And there's a wrinkle inside California's own government. Grant: Big one. The Hollywood Reporter Friday said Governor Newsom is worried a blocked deal costs the state jobs and that his office has nudged Bonta's team towards a settlement instead of a courtroom fight. Speaker 3: So the guy who green lit the lawsuit's boss is quietly hoping it never gets tried? Grant: That's the read, which tells you the April date isn't just about discovery time, it's about buying room for a deal to get made before anyone testifies. Testifies: Speaker 3: Paramount bid one hundred and ten billion dollars, knowing regulators exist. That's not a surprise they discovered in May! Why does a judge suddenly owe them a fast calendar? They signed up for this, Grant: because the states get unlimited time and Paramount doesn't and that gap is worth counting in real dollars, not months. How real? Real enough that the number is about to change how you read every filing in this case. Peace. Building on that leverage fight, here's what's actually decaying every single day. October 1st, the ticking fee kicks in, and I've been tracking this on my spreadsheet all week. $0.25 a share per quarter? Per Paramount share per quarter paid at closing on top of the deal price. 24-7 Wall Street ran the math, about $7 million a day, $650 million a quarter. $7 million a day just for the clock ticking, and if this runs to that April trial date into mid-2027, you're looking at total exposure near $1.7 billion. Wait, $1.7 billion against what free cash flow? Fortune has it at $96 million. The math doesn't work on this one. It really doesn't, and that's what kills me. $7 million a day against $96 million in the... It's in the bank, and if the deal just dies outright, Fortune's tally $7 billion regulatory termination fee, plus the $2.8 billion Netflix break fee already spent. Already spent $2.8 billion just to get to the altar? Gone. Sunk. Add it up and you're staring at nearly $9.8 billion in total walkaway losses. Okay, but here's what kills me. Paramount built that ticking feed themselves. A confidence signal. You're saying we're locked in-we'll pay you if we're slow-but that only works when both sides actually believe it's happening: a sweetener to beat Netflix in the bidding war. And now it's the state's favorite weapon. Every month they drag this out, Paramount's basically paying what it births shareholders to stay in the fight. They handed the plaintiffs a stopwatch and called it a strength. That's dealmaking: strength in February becomes a liability come Speaker 4: August. Grant: But he come August, so who eats that cost? Paramount signed the fee, nobody forced their hand. Right, but the States are the ones stretching the clock. Sure, but you don't build a trap and then complain when someone steps in it. Fair enough. That urgency's real, whether it's earned on the legal merits, is a different fight, and it starts with what discovery's actually been done. Speaker 4: [Music] Grant: So Paramount's not just racing the calendar, they're racing the Discovery calendar, and the states say that clock hasn't even started. Speaker 3: Meaning what exactly? Grant: Meaning zero depositions. Not one fact witness from Paramount, not one from a third party has sat for a deposition yet. That's their whole argument for April. Speaker 3: That's a real gap. You can't cross examine a filing. Grant: Right, and Deadline reported 402 days from the February 27th signing. Returning to the state's proposed trial date, arguing that's actually fast by merger litigation standards. Speaker 5: Four hundred and two days being fast is a real Hollywood-lawyer way to spin a delay. Grant: Sure, but compare it to what Paramount's citing back: the DOJ's AT&T-Time Warner case went to trial Speaker 4: faster. Reid Mercer: Trial about four months after the Government filed, back in two thousand eighteen. Grant: Four months-that's the number Paramount wants the judge staring at. Reid Mercer: Exactly, and Deadline notes the subtext: "An April trial leaves almost no runway to rule before the deal's outside date on June first, let alone survive an appeal. Grant: Okay, here's where I actually disagree with the framing, though. Reid Mercer: Go for it. Grant: Everyone's treating speed as innocent. In my world- WORLD When a seller wants to close fast before due diligence finishes, that's not confidence. That's someone who doesn't want you to find what's under the hood. Reid Mercer: I'd push back only slightly. Sometimes the fast mover just knows the numbers are fine and doesn't want to bleed cash proving it. We just spent the last segment pricing that bleed. Sure, but you don't ask a judge to skip depositions unless you're worried about what they'd surface. And the states don't ask for fifteen extra months unless slow walking is the strategy. That's the strategy, too. Both filings are honest about the calendar and quiet about the motive. One side's buying time, the other's buying a deadline. Neither wants to actually lose this on the merits, though, which is exactly why a judge who splits this down the middle should make both camps nervous. And if nobody wants a real verdict, someone starts making calls. Funny you say that, because there's already a call being made, inside California's own government. So the trial date fight might actually be a smokescreen because The Wall Street Journal reported Friday something that reshapes the whole negotiation. Grant: You mean the Newsom thing? Reid Mercer: The Newsom thing. Sources told the Journal his office has been nudging Attorney General Bonta towards settling, warning a blocked deal costs California entertainment jobs. Grant: Except Newsom doesn't run the AG's office. Bonta's independently elected. There's no chain of command there. Reid Mercer: None. But leaks like that aren't really about authority. They're about pricing. Paramount now knows the governor's office wants this off the table. Grant: That's leverage, whether or not the sentiment's even real. Reid Mercer: Exactly. And not everyone's buying the framing. Antitrust render Matt Stoller pushed back publicly saying it'd be strange for a 2028 hopeful to hand Hollywood to owners aligned with Trump. Grant: Something like he's not stupid, right? Reid Mercer: Close enough; Stoller's reads as Newsom has more to lose politically than Dane by clearing a path here. Grant: Which is probably why Bonta hasn't budged-his complaint doesn't want promises, it wants structure-spin pieces of the company off or don't get the deal. Reid Mercer: Because on paper this combination hands one company close to a third of U.S. theatrical distribution and roughly a third of basic cable programming. Grant: Wow! Reid Mercer: That's not something you fix with a pinky promise. Grant: You don't negotiate market share with a pinkie promise. Reid Mercer: No, you split the company up, so there's the gap. Newsom wants a handshake, Bonta wants a scalpel. Grant: I'll take the scalpel. I've watched plenty of handshake deals fall apart the morning of closing. Reid Mercer: And that split, governor and AG, same party, same state, wasn't on anyone's bingo card when this filing landed. Grant: Jobs versus market power. Sacramento's picking sides on its own merger. Reid Mercer: Which happens to be the exact argument the Writers' Guild is about to make from the other direction entirely. So while Newsom's people are working the phones, the WGA already filed its own shot, July fourteenth, one day after the State's. Grant: The same target, different bullet. Reid Mercer: Exactly. Screendaily confirms the Guild signed on to that April fifth twenty twenty seven date too. They're not just riding along on this. They're arguing the merger specifically wrecks the market for writers. Speaker 3: Matters. Grant: But labor isn't marching in lockstep here, right? Speaker 3: Not even close—AMC's Adam Aron and Cinema United's Michael O'Leary have both pushed back on the AG's, worried about what blocking this does to theatrical output. And you've got over a thousand directors and writers who signed the opposite letter, begging the states to stand down. Grant: So the same Union card doesn't mean the same interest. Speaker 3: Which gets us to the actual fight, doesn't it? Does delay protect the riders or does it starve them? I'll take the other side of that. Every month this drags Paramount can't plan development slates, greenlights freeze. That's mid tier writer work, gone, not paused. Grant: I don't buy the gone forever framing. A frozen slate for six months isn't a dead slate. The WGA's betting time gives them leverage on the back end: staffing minimums, streaming residuals, whatever gets bolted onto a settlement. Reid Mercer: Leverage assumes Paramount survives long enough to Speaker 4: negotiate. Speaker 3: enough to negotiate it. Grant: Right, and that's the actual bet everyone's making blind. Speaker 3: And nobody in this fight—WGA, Bonta, Aaron-actually controls the calendar. Grant: One person does. Speaker 3: The judge. Grant: So next real move isn't a filing, it's a scheduling order. Speaker 3: And that's exactly the piece coming up, because whatever date Judge Araceli Martnez-Olgun picks tells you who's actually winning this thing. Setting the trial date fight aside, what actually happens next is a scheduling order out of Judge Araceli Martnez-Olgun, and that's the real tell. Grant: Because if she picks anything past January . Speaker 3: Paramount's June first twenty twenty seven outside date basically evaporates; no time left for appeals if they lose. Grant: That's not a delayed anymore; that's a countdown. Speaker 3: Right, so watch for Paramount floating divestitures or Speaker 4: internal restructuring. Speaker 3: or cable carriage concessions to distributors. Grant: That's not a legal shift. Speaker 3: No, that's the ticking fee talking. Roughly seven million a day doesn't stay quiet forever. Grant: And the market's already pricing the fear. Yahoo Finance has PSKY down around forty percent year to date. Speaker 3: Forty! Grant: While WBD still sitting near his take over premium, that spread is the cleanest read on close odds anyone's got. Speaker 3: So Monday morning, if you're running a studio or a network, track the scheduling order first, the divestiture chatter second and that PSKY-WBD spread third. Those three move before any headline does. Grant: Fifteen years reading deal sheets taught me every acquirer has a walk. Walk away price—Ellison hasn't found us. Speaker 3: You think he should? Grant: I think the question that matters isn't whether the merger survives court—it's whether there's a number, in daily fees and legal costs, where the smart move is admitting the timing was wrong. Speaker 3: And nobody in this deal wants to be the one to ask that out loud. Grant: Which is exactly why the spread is more honest than anyone's press release. Speaker 3: So that's the case. Whoever wins the calendar fight wins the leverage before a single witness gets sworn in. Grant: And that feed clock still running underneath all of it—that's the part that sticks with me. Speaker 3: Every day they wait the Reid Mercer: The number gets uglier, which is the real lesson. Leverage isn't about who's right. It's about who can afford to wait longer. Grant: Ellison's finding that out in real time. Reid Mercer: Rough way to learn it. Grant: If this one clicked for you, email us Blueprint at heymeado.com or find us on social. Reid Mercer: And if you know somebody who would get a kick out of watching a merger turn into a hostage negotiation. Grant: Send them the episode. Reid Mercer: New one drops Tuesday. Grant: Thanks for hanging out with us today. Reid Mercer: We'll see you next week.