The largest leveraged buyout in financial history is making progress, at least in the European Economic Area (EEA). Here Paramount Skydance (PSKY) can buy its competitor Warner Bros. Discovery (WBD). The EU Commission, which is responsible as the competition authority, announced this on Tuesday. In the USA, however, a US federal court temporarily suspended the $110 billion takeover on Monday.
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There, several US states are taking legal action against the merger of Paramount Skydances with Warner Bros Discovery. The plaintiffs argue that the acquisition would restrict competition in film and television offerings, thereby causing significant harm to movie theaters, cable television networks and consumers in the United States.
According to its communication, the EU Commission only shares these concerns in one area, namely the distribution of cinema films. Because Paramount operates a joint venture with its competitor NBC Universal. The joint venture is called United International Pictures (UIP) and distributes films from both companies to film theaters in 19 EEA countries. The Commission fears that if UIP were to also sell WBD’s portfolio, this would mean too much concentration of market power in one hand.
In order not to jeopardize the huge takeover, PSKY has committed to exiting UIP within 13 months of completing the takeover of WBD. For ten years, Paramount and Universal are not allowed to coordinate in any other way regarding the distribution of cinema films in the EEA. For the same period, Paramount’s distributor in the EEA may only sell films from a maximum of one of the three studios Disney, Universal or WBD.
Other market segments OK
The Commission also examined the impact of the takeover on competition in the four areas of film production, production and licensing of other audiovisual content (in particular television productions), wholesale distribution of program channels (television channels) and retail sales of audiovisual services (streaming platforms) (ref. M.12278). The authorities have no concerns there.
When it comes to film studios, she sees sufficient competition from competitors in the USA and Europe. The Commission believes that there is also sufficient competition when it comes to audiovisual offerings. While there is significant overlap between PSKY and WBD when it comes to pay TV for children, streaming platforms provide enough content for children to counteract the market power of the larger entertainment group.
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The U.S. lawsuit is pending in the U.S. District Court for Northern California. It says California et al v Paramount Skydance and bears the Ref. 4:26-CV-07116.
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