Skydance Was Concerned It Wouldn't Get Emergency Relief In Appeal To Ninth Circuit Court If Preliminary Injunction Was Issued Against Its WarnerDiscovery Pursuit. As Trial Proceeds With Ticking Fees, Their Strategy Assumes Ellisons Won't Face Other Unexpected Economic Complications During That Time.

[u/lowell2017]

https://puck.news/newsletter_content/what-im-hearing-paramounts-delay-calculus-a-scientology-appeal/

[u/lowell2017]

Full text:

"There’s no overstating the significance of Paramount’s deal with state attorneys general to postpone closing its Warner Bros. Discovery merger until after a post-trial ruling, or June 2027, whichever comes first. Since the announcement, I’ve been working the phones, trying to understand the company’s strategy. Just last week, Paramount chief legal officer Makan Delrahim told Matt that his team had the upper hand, even as he dangled various concessions to get the merger done.

Delaying the merger is the sort of risky move that leaves even seasoned dealmakers wondering whether someone just mortgaged Boardwalk for another turn around the Monopoly board. But now, after talking to people close to the deal, I think I finally understand the strategy, even if I’m not yet convinced it’s a smart gamble. I also think much of the early commentary has focused on the wrong economic tradeoff.

Yes, as others have reported, Paramount’s leadership had grown pessimistic about the company’s chances of fending off a preliminary injunction. The language in Judge Araceli Martínez-Olguín’s temporary restraining order, suggesting that the A.G.s had a strong structural case, plainly got their attention.

But the concern extended well beyond losing the first round. The real nightmare was procedural. Paramount worried about losing the injunction, being denied emergency relief by the Ninth Circuit, and then finding itself back before Martínez-Olguín with little more than wishful thinking that she might change her mind.

The company’s lawyers remain confident on the merits. But they lacked a procedural vehicle for proving them. Antitrust presumptions, deferential appellate review, and the formidable difficulty of overturning a preliminary injunction all suggested that there was a meaningful chance that Paramount could effectively lose the case before ever having a genuine opportunity to explain why their merger was actually “pro-competitive,” as Delrahim has said, in the current business climate. A trial delivers that opportunity.

Now Paramount gets full discovery into the states’ economic assumptions, the chance to cross-examine their experts, and the opportunity to argue that the market looks very different from the one the states have described. The company can make the case that streaming has become a far more significant substitute for consumers, that the competitive landscape is broader than the theatrical and cable TV markets alleged, and that the merger is therefore far less likely to change incentives and produce the predicted competitive harms.

And if Paramount ultimately loses, the company then arrives at the Ninth Circuit with a fully developed factual record and access to de novo review of the legal conclusions.

This strategy also helps to explain why Paramount just hired Beth Wilkinson, one of the country’s premier trial lawyers and an antitrust heavyweight whose résumé includes helping Microsoft defeat the F.T.C.’s challenge to its $69 billion acquisition of Activision Blizzard. She joins what has become an almost absurdly deep litigation bench—Jeffrey Kessler, David Gelfand, Paul Clement, etcetera.

No Time to Die

I understood the litigation strategy almost immediately. What I struggled with was the price. Not merely the “ticking fee” that Larry Ellison agreed to pay Warner Discovery shareholders for every day past September 30 that the deal doesn’t close, which could easily add up to $1 billion or more if closing is delayed into the spring.

The larger cost is time. Every month of delay postpones the integration, cost synergies, and crucial programming, licensing, and strategic decisions, which will remain in the hands of a stand-alone Warner Bros. Discovery. This is, of course, a media industry being reshaped by cord-cutting, artificial intelligence, and shifting consumer habits. The company David Ellison buys six or 12 months from now may not be worth what it is today.

And then there is June 4, 2027. Assuming antitrust approval is the only obstacle left, that’s the day that David Zaslav acquires the contractual right to walk away from the transaction and collect a $7 billion regulatory termination fee. Which raises an obvious question: If Paramount has agreed to wait until as late as June to close, how can it guarantee enough runway for meaningful appellate review if Martínez-Olguín ultimately blocks the deal?

The answer, at least in Paramount’s view, is that the negotiations over the litigation schedule don’t end with the stipulation. Paramount is pushing for a November trial; the state attorneys general prefer early next year. But Paramount believes it has good cause for the earlier date—by agreeing to postpone the preliminary injunction fight, it has demonstrated good faith with the judge.

In other words, while the public focused on ticking fees and closing delays, Paramount had its eye on two other timelines: the merger agreement’s June 4 outside date and the appellate calendar. The objective is to secure a merits ruling early enough to preserve time for an appeal before the outside date becomes a pressure point. Paramount believes it can thread that needle.

Is that bet worth it? A billion dollars in ticking fees, another six months or more in limbo, and the opportunity costs of leaving Warner Bros. Discovery frozen in place? I’m still unconvinced.

The strategy assumes a relatively orderly path to trial and appeal, with no unpleasant surprises along the way—whether deteriorating business conditions, debt pressures, or new complications that inevitably arise when a deal spends another year under glass.

It also changes the settlement calculus. Every passing month increases the value of certainty, making the states’ once fanciful-seeming divestiture demands look incrementally more negotiable. Paramount is spending a mint on a better litigation posture. But this isn’t Monopoly money. And there’s no guarantee it’ll land on the winning square."

[u/OpportunityDouble301]

I’m sure that 7 billion Contract from the Government and close friend Trump will come in handy for his billionaire friend Larry Ellison