Shares of Paramount were up more than 8% on Monday, while Warner Bros Discovery surged more than 10%. Reuters first reported on Friday that Paramount and the states could settle as soon as the weekend.
Writers Guild challenge remains
While Trump administration regulators cleared the deal, a coalition of 12 state attorneys general, led by California's Rob Bonta, sued in July to block the merger, arguing it would reduce competition and create a media behemoth with the power to raise prices in movies and television.
Antitrust regulators in other jurisdictions globally, including the European Union and Britain, have already cleared the deal.
A settlement with the states will help Paramount avoid a "ticking fee" it owes Warner Bros shareholders for each day the deal does not close past September 30.
$7 million-a-day
But it does not fully remove Paramount's obstacles to acquiring Warner Bros Discovery. The Writers Guild of America has also sued to stop the deal, arguing it would decrease pay and worsen working conditions for film and television writers.
The union warned in July that a combined Paramount-Warner Bros entity would have "both the incentive and the ability to lower costs by suppressing writers' wages and reducing output."
"The final hurdle will be some trade unions that also have a similar lawsuit outstanding, but they'll be hard pressed to hold up this deal without paying the bond that Paramount requested," Morningstar analyst Matthew Dolgin said, referring to the $1.88 billion bond Paramount requested to address the costs of delay in closing the deal.
"On the merits, I think the unions would have a very low probability of winning their case, so I'd expect that to get settled also," Dolgin added.
The Writers Guild of America did not immediately respond to a request for comment.
A cleared Paramount-Warner deal suggests regulators may be more open to media consolidation as companies scale up to compete with Netflix NFLX.O and Walt Disney DIS.N. It also raises fresh questions about concentration in news, sports and entertainment.
The Wall Street Journal reported on Sunday that Paramount and California's attorney general had discussed a range of concessions, including a $1.5 billion investment in production in the state, a commitment not to sell either studio lot, and potential penalties if Paramount fails to meet annual release targets.
Other measures under consideration included selling some cable channels, WSJ had reported.
Settlement removes a major hurdle for the Warner Bros deal
Paramount Skydance PSKY.O has settled with California and 11 other states that sued to block its $110 billion acquisition of Warner Bros Discovery WBD.O, a source familiar with the matter said on Monday, clearing one of the last big hurdles to closing a deal that would reshape Hollywood.
The settlement includes the creation of independent editorial boards for CNN and CBS, and a $30 million penalty per film for any shortfall against Paramount's pledge to release 30 movies annually, the source said.
Paramount, Warner Bros Discovery and California Attorney General Rob Bonta's office did not immediately respond to Reuters requests for comment on the settlement.
The settlement caps months of regulatory and legal wrangling over a deal that would dramatically concentrate power across Hollywood's film, TV, streaming and news businesses.
By securing concessions aimed at preserving newsroom independence and maintaining movie production, Paramount appears to have addressed some of the concerns, bringing the two companies closer to completing a merger that will create one of the world's largest media and entertainment groups.
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