Paramount Skydance Corp. has resolved the legal challenge brought by California and several other states that sought to halt its planned takeover of Warner Bros. Discovery Inc., according to a source familiar with the situation.
Shares of Warner Bros. Discovery soared 10% on the news while Paramount Skydance up over 5%.
Negotiations concluded successfully over the weekend once four states that had previously resisted the terms outlined with California withdrew their opposition, the source said, requesting anonymity because the talks were private. The resolution, anticipated to be announced later today, removes the final obstacle to one of the most significant mergers in Hollywood's history.
Legal teams representing the states worked through the night to finalize the agreement, the source added. Massachusetts, New York, Connecticut and Minnesota had been the last remaining holdouts against a settlement, but ultimately decided that continuing the litigation was not worth the cost without California taking the lead, the source explained.
The states that held out for a longer period did manage to secure commitments for independent editorial boards at CBS and CNN as part of the deal over the past week, the source said.
As part of the terms, a financial penalty would be imposed if the company fails to uphold its pledge to release 30 films annually in theaters. Reports indicate that Paramount would be required to pay $30 million for each film that falls short of that target. Additionally, the company could be compelled to divest its stake in Miramax, the studio behind classics like Pulp Fiction, if it does not meet the goal.
Representatives for Paramount, California, New York, Minnesota and Massachusetts did not immediately respond to requests for comment.
If the final terms receive approval, the agreement would shield Paramount from paying Warner Bros. late fees of $7 million per day, which were scheduled to start on October 1.
Paramount, the parent of CBS, MTV and other media entities, announced in February its decision to acquire Warner Bros. after outpacing rival Netflix Inc. in the bidding process. The $110 billion transaction will unite two of Hollywood's most iconic film studios, two major subscription streaming platforms, and two of the largest owners of cable-TV networks.
While regulators in nearly 70 jurisdictions approved the acquisition, attorneys general from 12 states and the Writers Guild union filed lawsuits to prevent the merger, arguing it would reduce competition in film and cable-TV distribution, increase prices for consumers, and, from the writers' perspective, depress their earnings. A trial was scheduled for March.
In recent weeks, Paramount had made settlement overtures to resolve the cases, including commitments to release 30 films annually in theaters and boost television show production. California Attorney General Rob Bonta, who spearheaded the states' litigation, had expressed a preference for structural remedies, such as asset sales, over behavioral conditions that are difficult to enforce.