Paramount Skydance (NASDAQ:PSKY) shares slid 3.3% on Friday to close at $8.21, hitting a new 52-week low of $8.17, as a federal court halted the company's proposed acquisition of Warner Bros. Discovery, Inc. (NASDAQ:WBD). The legal setback has triggered a ticking fee that adds approximately $7 million in costs for each day the deal remains unsettled after September 30, with the maximum potential payout reaching $1.7 billion—equivalent to about 18.5% of PSKY's $9.18 billion market capitalization.
Legal Timeline and Costs
The court's decision to pause the merger came after California and 11 other states filed a lawsuit on July 13, arguing that the combination would reduce competition in both film and television markets. Both parties must submit their proposed trial schedules by July 31. A trial date has not yet been set, but analysis by Reuters indicates that similar merger disputes typically take about eight months to reach a decision.
Under the terms of the agreement, the companies will remain independent until five days after a merits decision, with the latest allowed date being June 1, 2027. If the delay extends beyond September 30, the additional fees accumulate as follows: $210 million for 30 days (2.3% of market cap), $630 million for 90 days (6.9%), and up to the maximum reported $1.7 billion by June 1, 2027 (18.5%). The final payout will be determined by the actual closing date.
Market Reaction and Spread
PSKY has declined 6.2% since July 17, while WBD shares dropped 4.1% over the same period. WBD closed at $25.77 on Friday, representing a 20.3% gross deal spread compared to Paramount's $31 per share cash bid, before accounting for timing or discount considerations. The Nasdaq Composite fell about 2.1% over five days, meaning Paramount's loss was nearly four percentage points worse than the broader index.
Paramount stated on Friday, "We look forward to proving our case at trial." Paolo Pescatore from PP Foresight previously described the legal action as "the most credible threat yet," according to Reuters.
Regulatory and Financial Context
The U.S. legal challenge followed conditional approval from the European Union by two days. As part of the EU's approval, Paramount must exit its EEA film-distribution partnership within 13 months after deal completion, with conduct restrictions remaining in place for ten years. Paramount also extended the deadline for related note tenders and exchanges to August 7. As of July 23, 66.17% of tender notes and 76.38% of exchange notes were submitted, though the company described these figures as non-final.
The company's upcoming second-quarter earnings report is scheduled for August 4, when investors are expected to focus on cash flow and funding for the acquisition. Risks include the possibility that a faster trial or settlement would reduce the ticking fee, while a deal failure could trigger a $7 billion regulatory breakup fee. There are sufficient existing commitments, with funding provided via Class B shares to Ellison parties at $16.02.
Valuation Outlook
Each week past September 30 increases the value of PSKY by approximately $49 million, establishing a new timeline for PSKY's valuation. The deal discount on WBD shares has surpassed the buffer provided by the delay fee, adding further pressure on the transaction's completion.
