Warner Bros. Discovery shareholders are about to vote on the Paramount mega-deal

By Brian Stelter, CNN

(CNN) — Paramount’s blockbuster acquisition of Warner Bros. Discovery, CNN’s parent company, is poised to clear a pivotal hurdle later this week.

Warner will hold a special meeting for shareholders to vote on the $110 billion bid on Thursday morning.

With the company’s board and multiple proxy advisory firms urging shareholders to vote yes, the deal is expected to be approved, moving Paramount closer to taking over its much bigger rival.

For shareholders, the math might be simple: A year ago, WBD was trading at about $8 per share, so Paramount’s $31-per-share offer comes as a relief.

But Paramount CEO David Ellison’s ambitions to combine his company with WBD remain a subject of controversy and anxiety in Hollywood and beyond.

Thousands of actors, directors, writers and other entertainment workers have signed an open letter opposing the deal, arguing that further consolidation of the media industry will hurt creators and consumers.

Opponents are hoping that state-level antitrust regulators will take action. And several Democratic state attorneys general have said they are examining how the deal will impact the media marketplace.

But Paramount executives are confident they can win all the necessary approvals to complete the takeover in the coming months. In fact, they’ve bet on it: the deal terms include a so-called “ticking fee” that increases the price per share if the deal isn’t finalized by September 30.

“Our goal,” Ellison told advertisers on Tuesday night, “is to build a leading media and entertainment company that strengthens competition, better serves the creative community, and delivers even more compelling stories to audiences around the world.”

Ellison added, “We’re doing exactly that by investing in great content and attracting and empowering exceptional talent, both in front of and behind the camera, and equipping our people with cutting-edge technology that enables them to do their best work.”

The deal that beat Netflix

Paramount prevailed in the bidding war for WBD in late February after Netflix declined to counter Paramount’s latest bid.

Netflix co-CEO Ted Sarandos suggested afterward that Paramount was an “irrational” bidder and said that Netflix walked away rather than overpay for the Warner Bros. studio, the HBO Max streaming service and other trophy assets.

Those Warner assets will turn Ellison, the son of Oracle billionaire Larry Ellison, into one of the world’s most powerful media moguls.

He has been building to this point for quite some time, having successfully taken control of Paramount from the Redstone family last year by merging it with his production company, Skydance Media.

Then he approached WBD CEO David Zaslav almost immediately with a buyout offer, which WBD repeatedly rejected until the share price exceeded $30 per share.

In the weeks since Paramount emerged victorious, top executives have begun the integration planning process with WBD, although the two companies must still operate separately for the time being.

Paramount argued in response to the anti-merger open letter that the deal “strengthens both consumer choice and competition, creating greater opportunities for creators, audiences and the communities they live and work in.”

At a movie exhibitor convention last week, Ellison reiterated his pledge to release at least 30 new movies in theaters per year through both the Paramount and Warner Bros. studios.

But it might be difficult to make the math work. The combined Paramount-WBD will be laden with debt, creating red flags for credit agencies and all but guaranteeing that management will conduct mass layoffs to cut costs.

The next hurdle…

After the WBD shareholder vote on Thursday, Ellison will be in Washington for a dinner “honoring the Trump White House and CBS White House correspondents.” The event coincides with the White House Correspondents’ Association’s annual dinner this Saturday, which Donald Trump is attending for the first time as president.

The Paramount soirée, first reported by Lachlan Cartwright’s Breaker newsletter, has drawn some fierce criticism, and some merger opponents plan to protest outside the event Thursday night.

The company is not responding to inquiries about the event. But it’s easy to see a connection between the dinner plans and the ongoing regulatory review of the WBD deal.

Paramount’s warm relationship with Trump has contributed to a widespread perception that the administration has blessed the deal. FCC chair Brendan Carr said last month, “I think this is a good deal, and I think it should get through pretty quickly.”

However, the Democratic state attorneys general think differently. The state AGs are contemplating whether to challenge Paramount-WBD on antitrust grounds.

“It is not a done deal,” actress Jodie Sweetin, best known for playing Stephanie on “Full House,” said on CNN International’s “Quest Means Business” earlier this week.

“You can still be fighting this, and really the biggest and most important place to fight it is at the state attorneys general level,” Sweetin said.

A coalition of state AGs recently succeeded in halting Nexstar’s takeover of local TV stations owned by its rival Tegna.

The US government could scrutinize the money behind the deal. Paramount’s financing includes backing from sovereign investors in Saudi Arabia, Abu Dhabi and Qatar.

However, a Paramount regulatory filing said earlier this month that the sovereign wealth funds will have no governance rights and that their relatively small stake may not automatically trigger a national security review.

European regulators are also taking a close look at Paramount. In the United Kingdom, the Competition and Markets Authority is soliciting public comments and signaling that it will soon launch a phase-one investigation.

From Paramount’s perspective, there is no serious antitrust argument against the takeover. For example, a combination of HBO Max and Paramount+ still wouldn’t be nearly as big as Netflix.

Additionally, a person close to the transaction said, “We have been talking with regulators for months and months already.”

Analysts say Paramount could well make concessions to regulators, resulting in a relatively swift deal approval.

In the EU, regulators could prod Paramount “to sell smaller European cable brands, divest niche channels, or spin off certain regional assets,” the Wall Street research firm MoffettNathanson wrote in an analyst note last month.

Alden Abbott, who was the FTC’s chief legal officer during Trump’s first term, wrote in a blog post that the scrutiny of Paramount-WBD is “much ado about not much.”

The deal “does not present a clear mechanism for anticompetitive harm, nor does it appear likely to enable the exercise of market power,” he wrote. “At the same time, it offers plausible efficiencies that could strengthen competition against larger, well-capitalized rivals.”

Those rivals include not just Netflix, but also tech giants like Google, Apple and Amazon.

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