FCC clears foreign investment for Paramount’s $110 billion WBD deal

MUMBAI: The Paramount-Warner merger has cleared one more regulatory hurdle, but the blockbuster deal still has a few plot twists left before the credits can roll.

The US Federal Communications Commission (FCC) has approved Paramount Skydance’s request to allow foreign investors to back its proposed $110 billion acquisition of Warner Bros Discovery, while placing restrictions on their voting and governance rights.

The FCC’s Media Bureau has waived the existing 25 per cent cap on foreign equity ownership, allowing individual foreign investors to hold up to 20 per cent of the equity. However, those investors will not be permitted to hold voting stock.

The restrictions go beyond voting rights. Foreign investors will not be allowed to influence or direct Paramount’s content decisions or management, provide commentary or guidance on those matters, or access non-public data belonging to US citizens. The approval follows a national security review involving Team Telecom, a US government committee of national security officials.

The decision has nevertheless put the spotlight on the scale of potential Middle Eastern investment in the combined company. The FCC said Middle Eastern investors could collectively hold about 85 per cent of Paramount’s equity after the transaction, including a 15.1 per cent stake for Saudi Arabia’s Public Investment Fund. Paramount, however, has said sovereign wealth funds would collectively own 38.5 per cent after the deal closes.

The ownership question has already drawn criticism from Democratic senators and FCC Democratic Commissioner Anna Gomez, who argued that a large equity position could create influence over a major US media company even without formal voting rights. These are concerns raised by opponents of the arrangement, rather than a finding by the FCC that foreign investors would exercise such influence.

Paramount has welcomed the FCC decision, maintaining that safeguards will prevent foreign investors from accessing personal data of US citizens. The company has also said the Ellison family, led by Oracle co-founder Larry Ellison, and RedBird Capital Partners would collectively hold the largest equity stake in the combined company and 100 per cent of its voting shares, with other equity investors having no governance rights.

But while the FCC has cleared the foreign investment structure, the merger itself is still facing a courtroom battle.

The US Justice Department has backed a request for a federal court to require the 12 states challenging the acquisition to post a bond covering potential costs arising from a delay. The states, led by California, argue that combining Paramount and Warner Bros Discovery would create a dominant force in film and television with the ability to raise prices. The Writers Guild of America is also challenging the transaction.

Paramount had previously asked the court for a $1.88 billion bond. The company faces a $7 million daily fee if the acquisition does not close by 30 September, adding another financial clock to an already complicated deal. Paramount has said that, by the time the trial and final legal filings conclude in April, it could have paid Warner Bros shareholders $1.3 billion in unrecoverable ticking fees.

The Justice Department’s latest filing argues that parties seeking a preliminary injunction under federal antitrust law should provide financial security against potential damages if an injunction is later overturned.

Paramount and Warner Bros Discovery therefore have another chapter to get through. The FCC has cleared the proposed foreign ownership structure, but the $110 billion transaction remains tied up in litigation, with the outcome of the antitrust challenge still determining whether the Hollywood combination can ultimately close.