David Ellison's Risky Courtroom Strategy to Save His $81 Billion Warner Deal -- WSJ

By Jessica Toonkel and Joe Flint

David Ellison spent nearly a year getting his $81 billion hostile bid for Warner Bros. Discovery inked, past the Justice Department and through regulatory inspection around the world.

After all that, a lawsuit from the California state attorney general to block the deal didn't seem like the biggest hurdle. But now, to clear that and potentially close the deal far later than he'd hoped, Ellison is making his riskiest and costliest bet yet: going to trial.

Paramount has agreed to pay $650 million per quarter in ticking fees at closing -- about $7 million a day -- if the deal isn't done by Sept. 30.

Ellison and his deputies are now back to the war-room mentality that has defined their quest to join Paramount, with CBS and its streaming services, to Warner, parent of HBO and CNN.

He and chief legal officer Makan Delrahim, the former head of the Justice Department's antitrust division during President Trump's first term, talk several times a day, people familiar with the matter said. They are discussing potential concessions, political appeals or other chess moves, with Ellison heavily involved.

They aim to highlight the potential for a deal collapse to hurt employment in Hollywood, the people said. California Gov. Gavin Newsom has expressed concerns about the state's lawsuit and the ramifications of it for Hollywood if the deal is blocked, The Wall Street Journal reported Friday. Newsom's office has encouraged Attorney General Rob Bonta's office, which has independent authority to file such suits, to find a resolution out of court.

The battle holds risks both for Hollywood's home state and the owner of a major studio fighting to gain scale in an industry suffering from cord-cutting and changing moviegoing habits.

Paramount shares have nearly halved since its pursuit of Warner heated up in December. The company has spent more than $160 million on legal and other fees related to its Warner bid in the six months ended in March, according to filings. If the deal falls through or is still unsettled by June 2027, it could pay Warner a $7 billion breakup fee or renegotiate the deadline.

Paramount executives have talked in internal meetings about their belief that the suit is politically motivated because Ellison's father is close to President Trump. Paramount hasn't made such an allegation in court.

Jon Leibowitz, who is serving as counsel for Paramount and is the former Federal Trade Commission chair under President Obama, said the case seems "like an effort to prevent the Ellisons from owning CNN," he said. CNN's reporting has been critical of Trump and he frequently complains about its coverage.

Bonta has said publicly that the states aren't seeking a divestiture of CNN and that a sale of the news organization wouldn't address the concerns raised in the coalition's suit.

In recent days, lawyers for both sides have gone back and forth to negotiate a start date for a trial that is expected to last weeks. Paramount is pushing for a November 4 trial start date while the attorneys general's lawyers want it to start April 5, according to a court filing Friday. A judge is expected to make the decision in the coming days.

The next move

Among the strategies Paramount lawyers have discussed: potentially providing incentives to states in the coalition that get them to drop out of the suit and weaken the case, people familiar with those discussions said. In some states they could have leverage: Paramount has a production footprint in New Jersey, where the state has wooed major studios with tax credits, a headquarters in California and staff in New York. Paramount has reached out to some state AGs on the suit, the people said.

William Kovacic, a George Washington University law professor and former chairman of the Federal Trade Commission, said that strategy could weaken the opposition, but "the states that really matter here are the big antitrust players: California, New York and Colorado."

The team has brought on Beth Wilkinson, a prominent trial attorney for a legal rematch. Wilkinson successfully beat the state's lawyer James Weingarten in Microsoft's successful defense of its $75 billion acquisition of Activision Blizzard. Wilkinson agreed that going straight to trial was the right thing to do, people familiar with Paramount's discussions said.

Paramount is also continuing to consider a potential move out of the state that is suing it, people familiar with those discussions said. Such a move wouldn't resolve the lawsuit, but it could represent a rebuke of a state that has seen a bevy of production move to other states and countries with richer tax incentives and lower operating costs.

Before Ellison's Skydance merged Paramount, he had discussed the idea of moving his production company to Tennessee, where he and his wife previously lived and where his father's company, Oracle, has a large presence. Ellison has told people close to him that while he doesn't want to move, relocating could help cover the cost of the ticking fee, a person with knowledge of his thinking said.

Hearing stumbles

Ellison quickly lawyered up more after the first hearing.

Early on in the July 17 session in district court in Oakland, Calif., the judge interrupted Jeffrey Kessler, the top antitrust lawyer Paramount had hired, whose decades of trials included the seminal case against the NCAA helped reshape college athletics.

Did the evidence Paramount put forward "just bolster the conclusion that there are serious questions here as to the legality of the merger," asked U.S. District Judge Araceli Martínez-Olguín.

Kessler answered that his opponents had to demonstrate that there was a probability the deal would lessen competition.

Later in the hearing, Kessler cited Apple's film "F1" as an example of a movie that was a box office success -- and a sign of competition in the market. The film was made by Amazon, he said. Then he quickly corrected himself: it was made by Apple.

The states' lead attorney seized on the opportunity to undermine his point, countering that the movie had in fact been distributed for Apple in theaters by Warner Bros. That fact, he said, underscored the power of the five major players that the merger could strengthen.

The judge later wrote that the states' presentation "at least demonstrates that serious questions going to the merits remain, weighing in favor of preliminary injunctive relief."

Warner employees, meanwhile, are awaiting details of what the postmerger future will look like and what further cuts might be ahead. Chief Executive David Zaslav spent much of July on a European jaunt, which included meetings with top Warner international executives and side trips to Amsterdam, Wimbledon and Spain. Zaslav could make more than $800 million if the transaction goes through.

For now, some integration planning between the two companies is continuing, but at a slower pace.

In recent weeks, Paramount has sought new candidates for the combined company's board. It approached former Activision CEO Bobby Kotick and Meta President and Vice Chair Dina Powell McCormick about becoming directors, according to people familiar with the matter.

Ellison has met with several Warner executives and asked detailed questions about their businesses. Prior to the lawsuit, Paramount was having internal discussions about potential joint ventures involving its linear networks and adding other companies' streaming services to its platform, people familiar with the discussions said. It has no plans to part ways with CNN, other people with knowledge of the matter said.

It is unclear if changes to the company's networks might be offered as concessions to the AGs.

The CEO has consulted with a number of people, internally and externally, about how he should organize its news division. The company is discussing whether to bring CNN and CBS together or operate them separately and Ellison has spent time with CNN head Mark Thompson, people familiar with the matter said.

CBS News head Bari Weiss, whom Ellison brought on when he bought her company Free Press, last year, has been under fire for changes she is enacting at the news organization. Ellison still trusts Weiss, the people familiar with the matter said.

In a memo to staff after hitting pause last week, Ellison said the deal had passed muster in 65 jurisdictions globally, a sign that it wasn't anticompetitive. "Let me be clear: we remain highly confident that this transaction does not pose any legal issues, and we will complete it and bring these two companies together."

"Let's go!," he signed off.

(END) Dow Jones Newswires

July 31, 2026 20:30 ET (00:30 GMT)