European Union gives its greenlight to Paramount and Warner's mega merger with some conditions

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The European Union approved Paramount's $81 billion takeover of Warner Bros. Discovery this week, effectively clearing another regulatory hurdle for a mega merger that could vastly reshape the entertainment and media landscape worldwide.

But the greenlight comes with certain conditions.

The European Commission — which serves as the EU's antitrust enforcer — said that even with a Paramount-Warner combo, enough competitors would exist across markets like film production and streaming in its 27-nation bloc. Still, when it comes to distributing movies to theaters, the Commission warned of high concentration that could lead to “worse rental and distribution terms for cinema operators, ultimately disadvantaging consumers.”

To address this, the Commission said Skydance-owned Paramount agreed to end its European Economic Area stake in United International Pictures — a longstanding venture with another major studio, Universal, that Paramount has used to distribute films in theaters outside North America. The company must end that partnership within 13 months of closing its Warner acquisition, the Commission said, and not enter any new agreements with Universal for the next 10 years.

Among other terms, current distribution of Warner films must be shifted to the same pipeline Paramount is using in these European countries. The European Commission said its approval was conditional on the company's commitments and that it would monitor their implementation, without expanding further on how that would be enforced.

Paramount welcomed the EU's greenlight, which it said represented “a major milestone” toward completing its acquisition. In a Wednesday statement, the company added that such clearances reflect how a Paramount-Warner combo “will enhance consumer choice” and create a business with a scale “capable of competing with the tech companies that have come to dominate the industry.”

A Paramount-Warner combo would mean putting HBO Max, cult-favorite titles like “Harry Potter” and even CNN under the same roof with CBS, “Top Gun” and the Paramount+ streaming service. Beyond movies and streaming, both companies also own a handful of European-based TV assets — including Warner's TVN Group in Poland, as well as localized channels for flagship Paramount brands like MTV and Nickelodeon.

Ongoing challenge from US states

The EU's blessing marks the latest in a chain of regulatory clearances inching the merger closer to becoming a reality, but the deal faces other challenges. In the U.S., a federal judge on Monday ordered the companies to pause their transaction for at least two weeks.

That spans from a lawsuit brought forth by California and 11 other states seeking to block Paramount and Warner's merger altogether — on the grounds such a tie-up would “extinguish competition” in Hollywood and lead to fewer choices for consumers, particularly moviegoers and cable customers in the U.S.

Paramount has called the states’ claims meritless. And the company reiterated that on Wednesday — noting that findings from the EU's approval “directly refute key assumptions that underpin the state AGs’ complaint,” particularly when it comes to competition from newer or smaller film studios.

Either way, the deal is set to be halted until at least a preliminary injunction hearing, currently slated for Aug. 3. When granting the temporary restraining order earlier this week, U.S. District Judge Araceli Martínez-Olguín said states had made a strong case about a combined Paramount-Warner’s potential to “substantially lessen competition” and that the merger would be “difficult, if not impossible, to unwind” without a pause.

Other regulatory clearances

In contrast to the states' case, the Trump administration's U.S. Justice Department said it wouldn’t block the deal — and instead released a lengthy statement in support, maintaining a Paramount-Warner combo would bring "benefits for American consumers and workers.”

Paramount says it's also received regulatory clearances from countries like Australia, China and Canada. Other reviews remain in progress — including from the U.K., which has separately suggested it may intervene.

The clock is ticking. The company has pledged to start paying Warner shareholders added “ticking fee” compensation amounting to about $7 million per day if the deal isn’t closed by Sept. 30.

Including debt, Paramount’s proposed purchase of Warner is valued at nearly $111 billion based on current outstanding shares.

Beyond central antitrust reviews, regulators in Europe have also effectively approved of the billions of dollars in financial backing Paramount has secured from three Gulf states: Saudi Arabia, Qatar and the United Arab Emirates. In regulatory filings, Paramount has maintained that these sovereign funds will not have any voting rights. Still, critics have sounded the alarm about what their money could mean in terms behind the scenes influence.