As always, the important thing is we won't have to cancel HBO Max for at least another month.

Now I can stop lying about not having seen Throne of Blood.

 

 

Status, which has been doing some really good work lately, was unusually generous with their recent newsletter on the Warner/Paramount deal. They convened a panel of antitrust experts and this time didn't leave the good stuff behind the paywall.

Here are some excerpts, preceded by a few framing thoughts.

I'm not sure how this could be seen as anything but a major setback for Paramount and, more importantly, the Ellisons, but there are so many unknowns and murky details that I'd be reluctant to make many definitive statements.

We can say time is not on the Ellisons' side. As best I can tell, the consensus is that Paramount will need to pay at least one quarter's worth of ticking fees, which come in around $650 million every three months.

Perhaps much more importantly, both Oracle and Larry Ellison appear to be in an extremely precarious financial position. Both are buried in debt. The company's bond rating is now one level above junk. The fortunes of both rely heavily on OpenAI turning things around, something I'm highly skeptical of.

I think there's a very good chance that Larry Ellison will no longer be worth $100 billion by June of next year, which would make things... interesting. He is currently committed to put up $43 billion for his son's vanity media empire when the deal goes through. Even for the super-rich, that's a lot of money, and, more to the point, it is a huge amount of cash. What happens if Ellison is not liquid enough to pull it together if and when the time comes?

That June 2027 date also raises loads of questions. Is that an upper bound that no one actually expects to hit, or a realistic estimate of how long this might take? My thoroughly uninformed opinion is that, if this deal doesn't go through considerably before that, it's not going through at all, but who knows?

Don't expect a roomful of law professors to reach a consensus, but it's fair to say Paramount didn't come off that well. 

If you're truly a glutton for this sort of thing...

Naked Capitalism has a deep dive into the ways Oracle's precarious position threatens the deal.

Josh Marshall discusses the Status article in the context of states pushing back against Trump.

 

____________________________________ 

Paramount is between ‘a rock and a hard place’

Every month this case remains unresolved, the economics of the deal become more expensive for Paramount because of ticking fees and other delay costs. At what point, if any, can those mounting costs start to affect a company's litigation strategy or willingness to push forward with a deal?

John Newman, Herff Chair of Excellence, University of Memphis School of Law:

Paramount put itself in a tough spot here. Paramount seems to have been assuming this deal would sail through review, and even if it drew a challenge, Paramount’s lawyers could quickly persuade a judge to dismiss the case. That strategy predictably failed, leaving Paramount stuck between a rock and a hard place. Merging companies often do abandon their deals when facing the prospect of protracted litigation, as Nvidia did with its purchase of ARM a few years back. At some point, Paramount will start to face serious shareholder pressure, and that can create pressure to walk away from a bad deal.

Shubha Ghosh, Crandall Melvin Professor of Law, Director, Syracuse Intellectual Property Law Institute:

Most deals have a “time is of the essence” clause or incentives to accelerate performance. Litigation or other delays may excuse their enforcement. It is unlikely the parties will back out voluntarily. If matters get costly, Paramount and WBD can renegotiate the terms.

William Kovacic, GW Global Competition Professor of Law and Policy; Professor of Law; Director, Competition Law Center:

The longer it takes to wrap up a transaction, the more things that can go wrong often do go wrong. The costs of finishing this deal go up. Your employees get restless and consider leaving. Uncertainty starts to create discord and doubt in your routine commercial relationships.

Fiona Scott Morton, Theodore Nierenberg Professor of Economics at the Yale University School of Management and an Adjunct Professor at Yale Law School:

In general, mergers are time-sensitive because whatever the strategy is for getting the deal done, it depends on technology and demand and what rivals in the marketplace are doing. The longer the merger is delayed, the less good the strategic fit. The lesson we learn is that the government can cause a firm to abandon its merger if the litigation is both forecast to last a long time and creates uncertainty.

George Hay, Charles Frank Reavis Sr. Professor of Law, Cornell:

A combination of the costs and a mounting concern that this may not be such a great deal for Paramount given the high debt they will incur and, of course, a nontrivial risk that the courts will ultimately reject the deal. Don’t be surprised if they pull the plug.

Eleanor Fox, Professor of Law Emerita, New York University School of Law:

The fact that Paramount is willing to pay the ticking fee is some indication of how valuable this deal is to Paramount.

Who really benefits more?

Both California Attorney General Rob Bonta and Paramount have portrayed the standstill agreement as a favorable outcome. Who actually benefited more, what practical advantages does each side gain from this arrangement, and which side would you say improved its position the most?

Newman: Paramount is pretty clearly trying to spin a bad loss as a victory. From the beginning, Paramount has been pressuring the judge to move extremely quickly. Paramount pivoting so drastically away from its own strategy suggests they got burned pretty badly here. Practically, that lets the states focus their time and resources on proving their own case, rather than having to simultaneously disprove Paramount’s argument about cordcutters and streaming being the future.

...

Morton: Paramount must be dissembling here, as their whole strategy—based on what I read in the news—was to move fast while offering money (like legal settlements) and benefits (like changing CNN) to the White House in the hope that it would instruct the regulator to allow what is a controversial transaction. AG Bonta is correct that the standstill agreement favors his side as it prevents the firms from "scrambling the eggs." Closing the transaction would make the merger effectively a done deal regardless of what a court might say later. Now the states have time to put together a case and explain why they think there will be harm to competition.

... Where will the merger be next summer? Looking ahead to this time next year, what do you see as the most likely outcome for this merger? What key developments will determine whether the deal ultimately proceeds, is modified, or is abandoned? Mark Lemley, William H. Neukom Professor, Stanford Law School: In this case, the merger will likely never be approved at all. The government signed off on it only because of political intervention; the Trump White House pushed this merger over Netflix because it would give right-wing billionaires control over still more news sources, including CNN. I'm not sure why Paramount agreed to this deal, except that they were reasonably confident they would lose at the preliminary injunction hearing after the court's ruling on the TRO. Newman: It’s really hard to predict with certainty because there are so many moving parts here. When the initial complaints by states, consumers, and workers got filed, I predicted the case would be tough but winnable. I still think that’s true, but it looks a little easier and more winnable now. If the companies were smart, they would probably just walk away from this deal. But on Paramount’s side, I don’t see a lot of smart, rational behavior. So who knows—Paramount may stick it out until the bitter end. ... Daniel Crane, Richard W. Pogue Professor of Law, University of Michigan Law School: Even apart from the legal questions about what substantive standards govern merger law, I'd rather have Paramount's hand than the states'. The states portray this as a 5-to-4 merger based on the idea that only traditional movie studios that produce movies for theater distribution count. That strikes me as a very 1970s view of the world. When you combine Paramount's likely advantage on the law and its argument that technological, economic, and social change undermines the states' view on movies, I'd give Paramount a decided advantage. Hay: Most likely outcome is that the deal is abandoned unless the states and Paramount can cut a deal soon. Fox: This is hard to predict. The states raise serious questions. But Paramount has some possibly good defenses. One of the most serious problems is the merger's threat to free speech and truthful news independently reported and not compromised by what the White House wants. Media diversity used to be a viable issue in antitrust analysis, but it is not likely to be any more.   ______________________________