Paramount Skydance sells $44 billion in bonds as Warner Bros. Discovery deal hits its deadline

Paramount Skydance Corp. opened one of the year's largest corporate bond sales this week to lock in the last major piece of financing for its $110 billion acquisition of Warner Bros. Discovery, timing that put the company's borrowing push on a collision course with a deadline built into the merger agreement itself: Wednesday, Sept. 30, the date after which Warner Bros. Discovery shareholders start collecting a penalty for every additional day the deal stays open.

In a filing with the Securities and Exchange Commission dated Monday, Paramount Skydance disclosed plans to sell approximately $44.4 billion in senior secured notes, denominated in both dollars and euros, to institutional investors under rules that exempt the securities from standard public registration. The proceeds, combined with cash on hand, term loans arranged earlier this year and an equity raise from the Ellison family and RedBird Capital Partners, are intended to fund the cash portion of the purchase price and retire existing debt at both companies, according to the notes offering announcement filed with regulators.

The price tag

The merger, announced in February, values Warner Bros. Discovery at $31.00 a share in cash, or roughly $81 billion in equity, and about $110 billion including assumed debt. Under the terms spelled out in the companies' merger proxy statement, Warner Bros. Discovery shareholders are entitled to an additional "ticking fee" of $0.25 a share for every 90-day period the transaction remains unclosed after Sept. 30 — a provision that, spread across roughly 2.5 billion outstanding shares, works out to close to $7 million a day accruing in the sellers' favor.

Pro forma financial statements that Paramount Skydance filed alongside the notes offering assume, for illustrative purposes, a closing date of Oct. 6. That estimate, laid out in the pro forma combined financial statements, would put the deal's completion roughly a week past Wednesday's deadline, meaning at least one quarter's worth of the fee is likely to apply even if financing and remaining paperwork go smoothly.

How the deal got here

Warner Bros. Discovery agreed to the sale after a monthslong bidding contest in which Paramount Skydance, controlled by Larry Ellison's family and run by his son, chief executive David Ellison, outbid Netflix for the company's studios, HBO Max and its cable news and entertainment networks. The U.S. Department of Justice cleared the deal in June after what the agency described as an eight-month antitrust investigation, finding that competition from streaming rivals meant the combination posed no threat to consumers.

That did not end the legal resistance. A coalition of a dozen states plus California, worried about concentrated ownership of CNN and CBS News and the companies' commitments to film production, sued in July to block the merger, with a trial originally set for next March. The suit was resolved on Monday, Sept. 21, when California Attorney General Rob Bonta announced a settlement at a news conference in Los Angeles, clearing what trade press described as the last major obstacle to closing the deal.

Who is affected

The settlement binds the combined company to specific, enforceable commitments rather than simply dropping the states' objections. Paramount agreed to invest an additional $300 million a year in domestic film production for five years, a total of $1.5 billion, and to release at least 30 movies a year in the merger's first two years, rising to 32 a year after that, with minimum numbers of wide theatrical releases in each stretch. Missing those targets triggers a $30 million penalty per film shortfall, split between union health and retirement funds and other film-industry nonprofits, and repeated failures could force the sale of the Miramax studio. The agreement also prohibits the combined company from selling or closing its Los Angeles-area studio lots for at least five years and establishes an outside board to oversee editorial independence at CNN and CBS News.

• Warner Bros. Discovery shareholders: owed $31.00 per share plus any accrued ticking fee once the deal closes
• Film and television workers in Los Angeles: covered by the five-year production and lot-preservation commitments
• CNN and CBS News staff: subject to a new independent editorial oversight board created by the settlement
• Bondholders and institutional investors: now underwriting roughly $44.4 billion of the deal's permanent financing

Press-freedom advocates were less satisfied with the outcome than the companies. Seth Stern, director of advocacy at the Freedom of the Press Foundation, told reporters the newsroom safeguards did not go far enough.

"An independent editorial board for CNN and CBS is a weak half-measure."

Reaction

Bonta, whose office led the multistate challenge, was careful to frame the settlement as a truce rather than an endorsement, saying the deal with Paramount "is not a vote of support for this merger" but rather a set of enforceable guardrails the states could secure through litigation. Ellison struck a different tone, telling staff that with the states and unions satisfied, the company now has "complete clearance for this merger and can move toward closing." Warner Bros. Discovery chief executive David Zaslav told employees in a separate memo that he expects the transaction to close "no later than early October," a timeline more definite than the one Paramount has offered in its own securities filings, which describe the exact closing date as not yet certain.

What happens next

With the states' lawsuit resolved and federal antitrust clearance already in hand, the remaining steps are mechanical rather than legal: pricing and closing the notes sale, funding down the bridge financing it replaces, and completing the last conditions under the merger agreement. Paramount Skydance's bankers closed order books on the notes Tuesday, and Bloomberg News reported the sale drew investor demand well in excess of the amount on offer, a sign that credit markets are betting the deal will close without further delay. Warner Bros. Discovery shareholders, for their part, had already voted to approve the sale at a special meeting back in April. Once the notes price and the acquisition formally closes, the combined company will bring together Paramount Pictures, CBS, Nickelodeon, Warner Bros., HBO Max, CNN and Discovery's cable portfolio under one owner, creating a company with more than 15,000 film titles and thousands of hours of television — and, for at least the next several days, a running daily bill owed to the shareholders who sold it.