Lost in limbo: Where the Paramount merger delay leaves WBD, and what may come next

It was only last summer that the company said it would split itself in two and began the process of creating separate, publicly traded entities: Warner Bros., which would have housed the streaming and film units, and Discovery Global, which would have run its global linear TV networks.

Change seemed to be happening at breakneck speed. The company was in the midst of an aggressive buildout for its HBO Max streaming platform, pushing into new markets and chasing subscriber and profitability growth. Its film studio was showing signs of much awaited momentum. CFO Gunnar Wiedenfels had begun strategizing with fellow executives on how to run a business of just TV networks in a period of rapid decline.

But after a sale process and a delayed merger with David Ellison's Paramount Skydance, much of that change has ground to a halt.

WBD CEO David Zaslav said during an earnings call earlier this month that executives have "been trying to drive the value of the company" in order to have WBD in the best shape possible for when the merger would close.

That was after a group of states led by California Attorney General Rob Bonta filed to block the deal on antitrust grounds — and before preliminary settlement talks between the California AG and Paramount seemed to fall apart earlier this week.

The start-and-stop means Warner Bros. Discovery has fewer options on the table at a time when the media industry as a whole is charting new paths. The company — made up of the storied film studio, a portfolio of TV networks and a prestige streaming business — once looked agile. Now it's forced into being cautious.

"This is as good a deal as Warner Bros. Discovery's going to get, and they are going to have a difficult time totally walking away here with no more than a breakup fee," said Tom Rogers, a media veteran who's currently senior advisor to Versant Media Group and executive chairman of AI film and TV production company Fountain 0. "So I think they have plenty of incentive to also figure out how this deal could get done."

The proposed $110 billion sale price should be a windfall for WBD, Zaslav included. Paramount has agreed to pay $31 per share to acquire WBD, and if regulatory approval is delayed beyond September, Paramount will start owing a "ticking fee," raising the deal value.

The questions that remain are what will Paramount be buying if the deal goes through after an extended delay, and what happens to WBD if it doesn't?

WBD doesn't necessarily need to stand still as it waits for the merger to move forward.

Interim operating covenants laid out in the merger agreement allow for WBD to run itself as an independent entity while the deal moves toward closing. That flexibility was a particular point of emphasis for Warner Bros. Discovery executives when it was negotiating a deal to sell itself — first with Netflix, then Paramount — according to a person familiar with the matter.

In situations where WBD would need Paramount's blessing to do something while the transaction is pending, the agreement states those permissions can't be "unreasonably withheld."