Justice Department Sides With Paramount on Demand That States Post $1.88 Billion Bond: A Practical Look

The government is urging a federal judge to force a dozen states led by California to bear the costs of the holdup caused by their lawsuits challenging the $111 billion megamerger of Paramount and Warner Bros. Discovery.

In a statement of interest filed on Tuesday, the Justice Department argues that the states must post a “proper bond” taking into consideration potential damages.

“The bond requirement forces parties to have skin in the game,” the motion states.

The move follows Paramount last week continuing to press California Attorney General Rob Bonta for a $1.88 billion bond to cover losses if it wins the cases over the deal, which has been temporarily halted. A trial has been scheduled for March, months past CEO David Ellison’s target closing date of late September.

In its filing, the Justice Department stresses that state and private parties challenging a merger — unlike the government — must post a bond if an injunction is issued. It characterizes the states’ lawsuit as a secondary enforcement mechanism subject to certain restrictions that don’t apply to the Justice Department and Federal Trade Commission.

“Congress provided for complementary antitrust enforcement by the federal government and private parties — but made clear that it was not a system of equals,” the DOJ states.

Across the litigation, Paramount has emphasized hefty losses associated with the court holding up the merger, pointing to missed opportunities to ramp up investment in production and rising financing costs.

Historically, courts have side-eyed issuing massive bonds in merger cases, particularly when state or federal competition enforcers challenge the deal. The judge overseeing the Nexstar-Tegna merger, for example, issued one for $10,000 after the TV giant asked for $150 million.

Separately, the government stresses that it concluded that the merger wasn’t likely to undermine competition. Over the course of its investigation, it reviewed over 2 million documents, plus extensive data relating to streaming, linear TV, and the production and distribution of films for theatrical release, according to Tuesday’s filing.

The Justice Department challenges the states’ argument that a bond can only be imposed after a finding that an injunction was improperly granted. It claims that interpretation of the statute would effectively put states in the same position as federal enforcers.

One potentially thorny issue for Paramount: The states have argued that the court never technically issued an injunction, which would render Paramount ineligible for a bond, since the studio voluntarily agreed not to close the deal under a joint stipulation. Paramount has pushed back on the framing, calling the argument disingenuous.

There will be major financial repercussions for the delay. Under the agreement, Warners shareholders are owed roughly $650 million per quarter or $6.9 million per day if the merger hasn’t closed by Oct. 1. The bond represents the maximum payout to investors, plus legal fees.