As long as Paramount ends its distribution business with Universal, it can buy Warner Bros. Discovery in Europe.
European Commission regulators have approved Paramount’s merger with Warner Bros. Discovery, on the condition that it ends its commercial relationship with Universal in the region. With approval from EU and US regulators, one of the last major hurdles to Warner Bros.’ massive acquisition Discovery by Paramount for $111 billion is now a legal challenge from 12 states that have temporarily suspended the merger.
Regulators considered the impact the merger could have on areas such as film production, film distribution, media licensing and television broadcasting, and ultimately decided that Paramount’s future distribution activities posed the greatest risk to fair competition in the market. Universal and Paramount operate a joint distribution company in Europe called Universal International Pictures (UIP) that regulators have identified as giving Paramount an unfair advantage when combined with Warner’s film portfolio. “The transaction would have meant that Warner films would also have been distributed via UIP and, without these commitments, it would have led to worse rental and distribution conditions for cinema operators, ultimately to the detriment of consumers,” the European Commission said.
To meet regulators’ conditions of approval, Paramount agreed to exit its joint distribution business within 13 months of closing the transaction. The company also agreed not to work directly or indirectly with Universal to co-distribute films for ten years.
Outside the European Union, Paramount still faces scrutiny from British regulators, who have signaled a willingness to intervene in the deal. And in the United States, while federal authorities have already approved the mega-merger, a set of twelve states are still suing to block it for competition reasons. A judge imposed a temporary two-week pause on the merger on July 20 and will hold a hearing on August 3 to determine whether the matter will require a full trial. At least for now, the lawsuit looks more like a hurdle than a brick wall for the deal.
Still, anything that slows down the merger process could prove problematic for Paramount: Bloomberg writes that if the deal is not closed by the end of September, the company will have to pay about $7 million more per day until it does.
