Every month of delay in the transaction is burning money! Paramount (PSKY.US) is demanding $1.88 billion in collateral from 12 states to cover the merger delay costs of Warner Bros. (WBD.US).

According to court documents submitted on Monday, Paramount (PSKY.US) will seek to compel states that are blocking its merger with Warner Bros. Discovery (WBD.US) to pay fees and costs related to the delay of the deal, requesting a bond of up to $1.88 billion. Meanwhile, market traders predict there is about a one in four chance that the deal will fail by mid-2027. On July 13 of this year, a lawsuit was filed by 12 state attorneys general, led by California Attorney General Rob Bonta, challenging the proposed $110 billion merger. This merger would combine two legacy film studios, Paramount and Warner Bros., and integrate the vast pay-TV networks of both companies in the U.S., as well as the streaming platforms HBO Max and Paramount+. The state attorneys general claim in the initial complaint that the merger would violate the Clayton Antitrust Act, a law that has been in place for over a century and prohibits anti-competitive mergers. The states filing the lawsuit include California, Arizona, Colorado, Connecticut, Massachusetts, Minnesota, Nevada, New Jersey, New Mexico, New York, Oregon, and Washington. A spokesperson for Paramount stated that it has obtained the necessary regulatory approvals to advance the merger from the U.S. Department of Justices Antitrust Division and all other global jurisdictions. However, due to the state attorneys general's lawsuit entering trial, the company agreed last month to delay the acquisition until at least June 2027. Paramount originally planned to finalize the deal by the end of September, and this delay could be costly. Paramount, in a statement citing the Clayton Antitrust Act and other federal laws, asserted that the plaintiffsnamely, the statesneed to "provide a bond to cover any damages that may result from the litigation that seeks to block the transaction." "In this case, each month of delay results in significant and quantifiable financial losses," Paramount stated. Under the merger agreement, Paramount has agreed to pay a so-called "ticking fee": starting from September 30, the company will pay Warner Bros. Discovery shareholders an additional 25 cents per share for each quarter until the deal is completed, amounting to about $650 million in cash per quarter. Paramount stated in the filings: "By the time the trial concludes and both parties submit their final statements, Paramount will have paid Warner Bros. Discovery shareholders $1.3 billion in ticking fees alone, which is non-recoverable." The company also indicated that the delay could jeopardize several regulatory approvals it has spent months obtaining. Paramount stated: "Without a bond, not a single penny of these huge losses can be recovered, even if we win the merits of the case. This is precisely why federal law requires plaintiffs to provide a bond as a prerequisite for obtaining court approval for preliminary relief." The company noted that the $1.88 billion is a direct calculation of the maximum potential ticking fees and financing costs that may arise from this litigation. However, Paramount added that the delays carry other costs: at least eight months of closing delays means the merged company cannot proceed with integration and cannot increase investment in content, production, and creative talent; employees of both companies are also affected by the uncertainty caused by the delays. The office of California Attorney General Bonta responded that Paramount "entered this process fully aware, and now they are reaping what they have sown." The statement noted that Paramount and Warner Bros. Discovery are two established companies that voluntarily included the expensive ticking fee clause in their merger agreement; they knew this merger would be subject to regulatory scrutiny and that it wasn't a done deal, yet chose to include the clause nonetheless. Bonta's office also stated that Paramount agreed to the timeline it is now protestingit agreed to the related dates and did not make providing a bond a condition for agreeing that the transaction may not be completed before the trial ends and could potentially be delayed until June 2027. "Now they are trying to start over again," the statement said. The probability of the deal falling through is about one in four. In the prediction market, traders still believe that Paramount is likely to successfully acquire Warner Bros. Discovery, but the state lawsuit has increased the probability of the deal failing. The Kalshi platform indicates that, as of July 2027, there is a 74% probability that Paramount succeeds in acquiring Warner Bros. Discovery, while the probability of the deal not being completed is 22%. Before the states filed their lawsuit on July 13, the probability of success had briefly exceeded 80%; however, after Paramount announced a delay in the acquisition until after 2027 on July 24, the probability of success dropped to 66%. On another prediction platform, Polymarket, similar contracts show that the probability of the acquisition not being completed by June 30, 2027, is 23%. Under the merger agreement, the deadline for terminating the deal is March 4, 2027; if only regulatory hurdles remain at that time, it will automatically be extended until June 4. A federal judge is scheduled to begin hearing the state lawsuit in March 2027. Paramount previously stated it will not complete the acquisition until the court makes a ruling on the state's request or by June 1, 2027, whichever comes first. Last week, the Directors Guild of America (DGA) and the International Alliance of Theatrical Stage Employees (IATSE) sent a letter to California Attorney General Bonta and Paramount's CEO David Ellison, urging both sides to reach a resolution through negotiation or to advance the trial start date to avoid negative impacts arising from prolonged uncertainty.