Judge orders Paramount to temporarily pause Warner Bros acquisition

July 20 (Reuters) – Paramount Skydance must pause its $110 billion acquisition of Warner Bros. Discovery through August 3, a federal judge ruled on Monday after a California-led coalition of states argued the merger would irreparably harm competition.

U.S. District Judge Araceli Martínez-Olguín in Oakland handed an early win to the group of states including New York, Colorado and Massachusetts, saying they had made a “strong showing” that the deal would unlawfully decrease competition.

Warner Bros. Discovery shares were down as much as 4% on Monday afternoon.

“Today’s decision is an important victory for all those who would be hurt by this merger, and I look forward to continuing to fight this case,” said New York Attorney General Letitia James.

The judge will hold a hearing on August 3 on whether the deal should be delayed throughout the course of the lawsuit, which could take months to reach a final ruling.

Spokespeople for the companies did not immediately respond to requests for comment. Paramount has said the lawsuit distorts settled antitrust law, and that delaying the transaction would only harm entertainment workers who have already suffered through years of industry disruption.

STATES SUE

The lawsuit, filed in Oakland federal court, threatens to derail Paramount CEO David Ellison‘s bid to transform his company into a major rival of Netflix and Disney.

California and 11 states sued on July 13, arguing the deal would create a media behemoth with ?the power to raise prices in film and television.

Martínez-Olguín agreed with the states that letting the deal close would likely lead to changes that are hard to undo if the merger is ultimately found to be illegal, such as job cuts and sharing of sensitive information.

The judge said the deal looks likely to violate antitrust law if it gives the combined company 27% of the market for distribution of widely-released films as the states have alleged. A final determination would come after both sides present evidence at trial.

Paramount Skydance’s argument that companies like Amazon and Apple have entered the film market recently was not enough to show the merger is lawful, the judge said.

With fewer distributors, studios could find it easier to pressure theater owners for a greater share of ticket revenue, the states have alleged.

A prolonged interruption could hurt Paramount Skydance financially. For each calendar day the merger is delayed past September 30, Ellison would be on the hook to pay Warner Bros. shareholders a 25-cent-per-share “ticking fee,” or about $7 million a day, according to the merger agreement.

(Reporting by Jody Godoy in New York and Dawn Chmielewski in Los Angeles; Editing by Andrea Ricci and Nick Zieminski)