Paramount secures billions from Gulf sovereign funds as merger faces legal hurdles
Category: Business
The U.S. Federal Communications Commission (FCC) has approved a plan allowing foreign investment from Saudi Arabia, Qatar, and the United Arab Emirates (UAE) in the proposed merger between Skydance-owned *Paramount* and *Warner Bros. Discovery*. This decision clears a major regulatory hurdle for the anticipated $81 billion acquisition, which is still on hold due to an antitrust battle involving twelve states and Hollywood writers.
On Friday, *Paramount Skydance* shares closed at $10.21, a decrease of 41 cents or 3.86%, following the FCC's announcement. Trading volume was unusually high, with 78.6 million shares changing hands, approximately 6.5 times the stock’s three-month average of 12 million. Meanwhile, *Warner Bros. Discovery* shares also slipped, ending at $27.80, down 44 cents or 1.56%.
The FCC's Media Bureau allowed *Paramount* to exceed the usual 25% foreign ownership benchmark, authorizing up to 100% in aggregate indirect ownership. In its petition, *Paramount* disclosed that foreign-owned Class B shares are expected to represent about 49.5% of its equity post-investment. Specific stakes approved include 15.1% for Saudi Arabia’s Public Investment Fund, 12.8% for the L’Imad chain associated with Abu Dhabi, and 10.6% for the Qatar Investment Authority.
Importantly, the FCC ruling stipulates that these shares are nonvoting, meaning that investors will not have governance or information rights, nor the ability to influence *Paramount*’s content or management. This regulatory approval was necessary because *Paramount* controls CBS broadcast licenses, and the FCC aimed to mitigate any potential foreign influence over U.S. media.
Critics have raised concerns about the implications of such substantial foreign investment, particularly in light of the reputations of the governments involved. FCC Commissioner Anna Gomez, the commission's sole Democrat, voiced her apprehensions on social media, stating, "The FCC just let some of the most repressive governments in the world indirectly control nearly all of a combined *Paramount-Warner Bros.*" She warned that investments of this size could secure influence over editorial decisions and content production. Gomez had previously called for a full Commission vote on the matter, arguing that the decision should not have been made at a staff level.
The merger between *Paramount* and *Warner Bros. Discovery* is seen as a strategic move to create a media giant capable of competing on a global scale. The combined entity would bring together extensive assets across film, television, streaming, and news, including the integration of *Paramount+* with *HBO Max* and ownership of major properties like *CNN*.
As part of its financing arrangements, *Paramount* has sought waivers from the FCC to accommodate foreign investments that exceed the typical limits on ownership. The proposed $24 billion investment from Gulf sovereign funds is expected to play a key role in funding the acquisition, which is currently valued at nearly $111 billion when factoring in outstanding shares and debt.
In addition to the FCC's approval, *Paramount* has received clearances from various jurisdictions, including the Trump administration's Department of Justice. Nonetheless, the merger remains entangled in legal challenges, with a lawsuit filed by California and eleven other states claiming that the merger would stifle competition in Hollywood and limit consumer choices.
The legal proceedings surrounding the merger are set to continue, with a trial scheduled to commence in March. The states involved in the lawsuit allege that the combination of *Paramount* and *Warner Bros. Discovery* would reduce competition in the film and television sectors, which could lead to fewer options for consumers, particularly in cinema and cable.
As stipulated in a July agreement, *Paramount* and *Warner Bros.* must remain separate entities until a ruling is made on the merits of the case or until June 1, 2027, whichever comes first. This timeline adds a layer of complexity to the merger process, as the companies are eager to resolve the antitrust issues that currently block the deal.
Meanwhile, the FCC's decision does not alter the existing injunction or the pending legal challenges. The ruling serves as a reminder of the financial risks associated with the merger, as *Paramount* has agreed to pay $31 in cash for each *Warner Bros. Discovery* share, creating a gross spread of 10.3% based on Friday's closing prices.
As the situation develops, investors will closely monitor the upcoming court dates and any potential settlements that might expedite the merger process. The next key date is September 30, when a ticking fee will begin to accrue, increasing the urgency for both companies to reach a resolution.
In light of the FCC's ruling, *Paramount* remains optimistic about its future, asserting that the influx of foreign capital will provide the necessary resources to compete effectively in the global media market. The company continues to advocate for the merger, emphasizing the scale and capabilities it would bring to the combined entity.