By Richard Powers, Partner, Kressin Powers

In a last gasp effort to convince Warner Brothers Discovery shareholders that their hostile tender offer carries less regulatory risk than the Netflix-Warner transaction, Paramount Skydance recently announced it had “complied” with the DOJ’s second request for merger information. If the DOJ does not challenge during the ten-day waiting period, Paramount would reportedly “use that as a sign of government approval and … try and convince Warner Bros. shareholders to vote against the Netflix transaction.” Based on my 13 years as a career prosecutor in the Antitrust Division, including one year as acting head of the Division, I believe that in making its unilateral declarations, Paramount will have failed to inform Warner shareholders of at least ten critical details:

1. DOJ Can Still Oppose Any Paramount Acquisition – The DOJ can still challenge any prospective Paramount combination in court. As Bill Rinner, an attorney with Paramount’s legal counsel, explained when he was a senior DOJ official, it is “false to assume” that “expiration of the statutory waiting period constitutes ‘clearance’ or ‘approval’ of a transaction.”
2. DOJ Can Challenge Paramount’s “Compliance” – The DOJ can also send Paramount a deficiency notice or bring an enforcement action challenging the adequacy of its compliance with the second request. Deficient compliance can extend the regulatory waiting period and subject parties to monetary penalties.
3. Rushes the Review Process – Metaphorically, Paramount appears to have backed up a truckload of documents and data on DOJ’s doorstep betting they would not be able to respond during the ten-day waiting period.  Rushing the merger review process to develop a misleading talking point in a proxy fight does not serve the interests of Warner shareholders.
4. Foreshadows Easier Approval of Netflix’s Deal – A Paramount/Warner Bros. merger would reduce the number of major Hollywood theatrical studios from 5 to 4. In a market for blockbuster films, the combination would trigger a presumption of illegality under the DOJ’s merger guidelines, similar to the Penguin Random House/Simon & Schuster merger that the DOJ successfully blocked. Not only would this be harmful to theater owners, but it would also harm creators who sell projects to studios for theatrical release. A Paramount/Warner Bros. merger would also combine two major news networks, two major sports distributors, and two major children’s networks, raising serious additional antitrust concerns that will surely face scrutiny from the DOJ, state attorneys general, and foreign antitrust authorities.
5. Ignores Role of U.S. Regulators –Paramount’s offer includes $24 billion in financing from Middle East sovereign wealth funds, potentially implicating lengthy security reviews by CFIUS and FCC’s Team Telecom.
6. Ignores Role of State AGs – Any Paramount acquisition of Warner could also be challenged in court by State Attorneys General. State antitrust enforcers have become increasingly active in challenging mergers. This is a particular vulnerability given the adverse impact a Paramount acquisition would have on state economies and labor—in particular in California and New York—and its diminution in editorial independence resulting from Paramount’s consolidation of cable holdings, including CNN.
7. Ignores Role of Foreign Antitrust Regulators –Antitrust regulators in the EU, possibly the UK, and elsewhere would need to engage in an arduous and likely time-consuming review of any Paramount acquisition.
8. Ignores Employment Risks – Paramount’s proposal would lead to substantial job cuts. As Warner’s board explained, Paramount’s “aggressive target of $9 billion of synergies … will inevitably entail significant headcount reductions” and may lead to “substantial losses of employees and talent in the pre-close period.”
9. Ignores Financial Risks –Paramount’s hostile offer subjects Warner to a series of significant financial risks, including Paramount’s weak financial condition and heavy debt load. As has been widely reported, a Paramount acquisition of Warner would be the largest leveraged buyout in history, creating a combined company so laden with debt that it will have no choice but to drastically cut costs and reduce the quantity or quality of its content, or both.
10. Refusing to Testify Before Congress – Unlike Netflix and Warner executives, Paramount has refused to make its case under oath before Congress.  Warner stockholders should ask, what are they trying to hide?

In the end, Paramount’s unilateral regulatory declarations are in Macbeth’s immortal words, “a tale full of sound and fury, signifying nothing.”  It certainly should not fool Warner’s stockholders.

Richard Powers is a partner at Kressin Powers and formerly served as Acting Assistant Attorney General at the DOJ Antitrust Division. During his time leading the Division they brought a successful merger challenge to the Penguin-Random House merger.  Kressin Powers currently represents Netflix on antitrust issues in the technology industry before Congress.