Ellisons’ Long Game Amid Legal Hurdles for Warner Bros. Discovery Merger

David and Larry Ellison are known for their strategic thinking, and recently, their media venture, Paramount Skydance, is gearing up to tackle its ambitious $80 billion merger with Warner Bros. Discovery.

However, there are significant challenges ahead, notably a surprise lawsuit from 12 state attorneys general aiming to halt the merger. Additionally, a recent decision by a federal judge in San Francisco has temporarily blocked the deal for at least a month.

Insiders from the Ellison campaign suggest that a preliminary injunction from the judge is anticipated, potentially delaying the merger indefinitely. This could usher in a lengthy legal battle, where even with strong evidence supporting compliance with antitrust laws, the odds seem unfavorable for Paramount Skydance. The Ellisons are even deliberating taking their fight to the Supreme Court.

It’s certainly not an easy situation. The lawsuit has generated a lot of negative sentiment toward the Ellisons, exacerbated by the politically charged environment, particularly from those opposed to Trump. Warner Bros. Discovery shareholders might face further losses, with the company’s stock already dipping significantly, likely to drop more if the injunction is granted.

This isn’t the first time the Ellison duo has met with obstacles. Acquiring Paramount from the Redstone family was a tough battle, and they also faced a contentious bidding war against Netflix for Warner Bros. Discovery, emerging victorious after it appeared Netflix would have the edge.

The previous administration was more welcoming to mergers, but the Ellisons are acutely aware that a coalition of Democratic attorneys general has been ready to challenge their moves. They, along with their general counsel, have been preparing for this like a chess match.

“We’re not backing down,” said an individual close to Paramount. “The Ellison family will fight till the end.”

They foresee the likelihood of an injunction for multiple reasons. For one, the judge pointed out concerns over market share, noting the combined entity could have a 27% stake in theatrical releases, which she suggested might signal antitrust issues.

Another consideration is Judge Araceli Martinez-Holguin, who was appointed by the Biden administration and is known for her stance against mergers. Given Larry Ellison’s connections with Trump, they are bracing for a drawn-out conflict.

But what does the “long game” truly entail? If a preliminary injunction is issued, the Ellisons won’t be allowed to finalize any contract terms until the trial concludes. This situation means they’ll incur a considerable sum—$650 million quarterly—due to the deal’s ticking fee arrangement.

They have the financial backing to sustain this, with Larry Ellison’s net worth still standing at $167 billion despite some recent downturns in Oracle’s stock performance. Keeping in mind the ongoing legal battle with Lightshed Partner Analyst Rich Greenfield, which isn’t likely to wrap up until 2027, they seem resolute.

While there could be an option to step back, Greenfield has reservations about this strategy, echoing sentiments within Team Ellison. Abandoning the merger would impose a hefty $7 billion exit fee, leaving the Ellisons and their partners at Redbird Capital in a weaker position, lacking the robust assets offered by Warner.

Nevertheless, given the political landscape, the judge will likely evaluate the case based on its merits. California Attorney General Rob Bonta leads the state’s case against the merger, and his arguments have been met with skepticism; he claims that two merging companies, facing economic difficulties, would somehow perform better separately, which raises eyebrows.

It’s a peculiar claim considering Warner’s stock volatility indicates potential troubles ahead, especially in the highly competitive entertainment sector, significantly influenced by streaming services.

Unfortunately, factual evidence appears to be secondary in this California courtroom, where the judge is expected to creatively argue points related to Trump’s influence over the merged entity, which hosts platforms like CBS and CNN.

Looking ahead, expect this drawn-out legal saga to extend into the next year as they ultimately await a Supreme Court ruling that may decide the fate of this merger.