Paramount Skydance Corp (NASDAQ: PSKY) is reportedly in advanced discussions with state attorneys general to clear the path for its $110 billion acquisition of Warner Bros. Discovery (NASDAQ: WBD), although not all state officials are on board with the proposed terms. According to sources familiar with the matter, California Attorney General Rob Bonta, who has spearheaded the coalition of 12 states challenging the deal in court, has been actively working toward a settlement agreement with the company over the past several days.

However, New York Attorney General Letitia James has voiced opposition to the current terms and is seeking additional protections for employees. Reports also indicate that Connecticut, along with at least two other states, remains skeptical of the settlement framework and has yet to endorse it. These dissenting states are pushing for further concessions from Paramount. A separate source close to the negotiations noted that Connecticut Attorney General William Tong is focused on safeguarding the editorial independence of both CNN and CBS News.

Shares of Warner Bros. Discovery surged as much as 8.3% in after-hours trading on Friday evening following reports that settlement talks between Paramount and Rob Bonta had reached a critical stage. Earlier reporting suggested that the discussions include provisions for independent oversight of CNN and commitments on the volume of theatrical film releases. Paramount is now facing a decisive moment that will shape the future of its media empire.

The transaction, valued at up to $111 billion and designed to merge Paramount with Warner Bros. Discovery into a Hollywood powerhouse, has secured antitrust approvals from 68 countries and jurisdictions worldwide. Yet it has hit a roadblock at home, facing an antitrust lawsuit filed by a coalition of 12 Democratic-led states and the Writers Guild of America (WGA). The regulatory battle over this historic merger began in July, when California Attorney General Rob Bonta, joined by 11 other states, filed a formal complaint on July 13, alleging that Paramount's $111 billion acquisition of Warner Bros. Discovery would severely harm market competition.

The states argued in their filing that the combined entity would secure an illegal share of the market in film production and cable television. Specifically, by merging Paramount's channels, such as MTV and Nickelodeon, with Warner Bros.' networks, the new company would command 27% of all fees paid by pay-TV distributors to channel owners and capture 34% of viewing share on basic cable networks. On July 20, U.S. District Judge Araceli Mart铆nez-Olgu铆n in California issued a temporary restraining order, halting the deal for at least two weeks. Subsequently, Paramount agreed to delay the transaction until as late as June 2027, pending a court ruling. The antitrust trial is scheduled to commence on March 2, 2027.

The delay triggered by the litigation is exacting a heavy financial toll on Paramount. Under the deal's terms, if the merger is not completed by September 30, 2026, Paramount Skydance must pay $7 million per day in "ticking fees" to Warner Bros. Discovery shareholders. Paramount has petitioned the court to require the 12 suing states to post a $1.88 billion bond to cover the costs of the transaction delay stemming from the lawsuit. The company asserts that by the time the trial concludes next March and final legal briefs are submitted, it will have already paid $1.3 billion in non-recoverable ticking fees to Warner Bros. Discovery shareholders. Rob Bonta has indicated that he seeks substantial modifications to the deal before agreeing to any settlement, while Paramount has expressed openness to some form of structural remedy.

Amid the mounting legal pressure, Paramount is now eyeing a major divestiture plan. Estimates suggest that if Paramount agrees to sell Turner Networks, a key asset group of Warner Bros. Discovery, as part of a settlement to resolve the lawsuit, the company could secure approximately $8 billion in capital and certain legal relief. Turner Networks, which includes TBS, TNT, and CNN, is among Warner Bros. Discovery's most valuable portfolios. These channels generate roughly $2 billion in annual EBITDA (earnings before interest, taxes, depreciation, and amortization), with a projected sale price around four times that profit figure. Previous reports have also indicated that Paramount is considering divesting assets like HGTV and the Food Network to address the litigation.

Selling Turner Networks presents a double-edged sword for Paramount. Rich Greenfield, an analyst at LightShed Partners, noted that Paramount's rationale for acquiring Warner Bros. Discovery was largely driven by the opportunity to integrate the two companies' extensive television portfolios to boost operational efficiency. However, under the weight of antitrust scrutiny, shedding some assets to preserve the overall transaction may be an unavoidable cost for the company.