In short: News mention ("Stocks I'm Watching"): +5% premarket as Paramount and a coalition of states suing to block its $81 billion Warner merger work toward a possible settlement — a $1.5 billion Paramount investment in California production on the table (WSJ report).
In short: Referenced only — Snipe (14:50): Netflix has been "a tough story ever since kind of the Paramount deal didn't happen."
In short: The acquirer whose conduct is now the risk. After a weekend of reports that settlement talks would open Monday, California AG Rob Bonta called them off — "citing allegations that the company's leadership has leaked information and negotiated in bad faith… 'As soon as Paramount stops playing games and engages more sincerely, my office is happy to meet again.'" Substantively, Paramount is weighing structural remedies: it "calculated the financial implications of divesting HGTV and the Food Network" and decided against, and is instead "considering offering to negotiate separate distribution agreements with cable operators for different parts of its TV empire." The state AGs' ask, per the WSJ, is cable-channel divestitures plus keeping the movie studio separate from Warner Brothers. "There's no set date as of now for when the state AGs and Paramount Skydance will sit down for settlement talks again."
Paramount is the buyer in the Warner Bros. Discovery deal, and this week its own conduct became the obstacle. California's attorney general cancelled the scheduled settlement meeting, accusing the company's leadership of leaking the substance of the talks to the press and then misrepresenting them — "demonstrating a lack of good faith." No new date has been set.
On the substance, Paramount is moving. It ran the numbers on selling Warner's cable channels such as HGTV and the Food Network, concluded it would not have to, and is instead considering offering to negotiate separate distribution agreements with cable operators for different parts of its television business — a structural remedy that addresses the concern without the sale.
The states want more: divesting some cable channels outright, and a binding commitment to keep the film studio separate from Warner's. The gap between what Paramount is offering and what the states are asking is now the deal's remaining risk — and it just became harder to negotiate across.
Full passage: premium transcript (PDF).
In short: The acquirer, tracked for what its legal manoeuvring says about the spread rather than as a position. Paramount "requested a $1.9 billion bond from the 12-state coalition that was opposing the deal," meant to cover the harm from the ticking fee if the deal misses October 1st — and California's AG rejected it, arguing "that Paramount is sophisticated and it knew that it would face regulatory review when it agreed to pay Warner Brother shareholders a $7 million per day ticking fee, and that California should not be made to bear the burden of that decision." Paramount also carries the Cinema United commitments on wide-release counts, exhibition fees and library access.
Paramount Skydance is the buyer in the Warner Bros. Discovery deal, so its actions determine what happens to Singh's arbitrage position rather than being a holding in their own right.
Two moves this week. It won over the cinema owners by promising to keep releasing films in theatres, not to raise the fees exhibitors pay, and to keep both studios' libraries available — which removed the industry's objection that regulators had been relying on. And it went on the legal offensive, asking a court to require the twelve states suing to block the deal to post a $1.9 billion bond, on the grounds that their lawsuit is what would trigger the $7 million-a-day penalty Paramount owes Warner shareholders for a late closing.
California's attorney general refused, arguing that Paramount is a sophisticated buyer that knew it faced regulatory review when it agreed to that penalty, so California should not have to underwrite its choice. The fight over who bears the cost of delay is exactly what an arbitrageur watches.
Full passage: premium transcript (PDF).
In short: The acquirer side of his largest arb: "that's Warner Brothers / Paramount Skydance. So, that's a cash deal" — an all-cash structure, which is what makes the ~19% spread ownable rather than a paired bet.
5:30And then we're long the Warner Brothers WBD spread, which is one of the big merger arb spreads in the market. So, that's Warner Brothers / Paramount Skydance. So, that's a cash deal. It was about a $5 spread, so 19%. And we think that it's going to go through antitrust; the deal probably will close next year.
In short: Named with Disney as one of the streamers that spent "tens of billions of dollars" chasing Netflix and then "conceded the battle" — the pre-merger Paramount, referenced only to date Netflix's win in the streaming war.
7:36Netflix is still profitable and growing despite all their competitors spending tens of billions of dollars on streaming to chase Netflix. Now since then, over the following years, Netflix's stock price quickly sailed upwards, going up around 600% from the lows. And while many other streamers like Paramount and Disney were throwing tens of billions of dollars at streaming, most of them gave up the fight.
In short: Stronger before the storm. Revenue +1% Y/Y to $6.9B (a $40M beat) and adjusted EPS $0.18 ($0.01 beat), but adjusted EBITDA +27% to $1.1B: FY26 EBITDA guidance raised to $3.8–$3.9B and the free-cash-flow conversion target doubled to at least 10%, with the $30B revenue outlook unchanged. Streaming is getting healthier on quality rather than headcount — Direct-to-Consumer revenue +9% to $2.5B with Paramount+ revenue +16%, 2 million net adds to 81.6 million, ARPU ~+12%, churn at its lowest level ever and Paramount+ advertising up more than 30%. TV Media is the structural drag: revenue −9% to $3.1B with advertising −14% and affiliate −6%, though "disciplined cost cuts kept segment EBITDA near $1.1 billion and improved margins." Studios revenue +16% to $1.3B on TV production, licensing and Skydance consolidation; theatrical fell against the Mission: Impossible comparison but profitability improved and management says every marketing dollar is generating 11% more box office than a year ago. Efficiencies now expected above $2.7B run-rate by year-end (from $2.5B) against a $3B-plus Skydance target, "starting to show up in EBITDA and cash flow rather than just offsetting revenue pressure." The cost of waiting is the offset: with the merger timeline past September, Paramount expects $8–$9M of monthly bridge fees and owes WBD shareholders roughly $650M for every quarter of delay if the deal closes — or a $7B reverse termination fee if regulators kill it; financing "remains fully committed," with $1.6B of cash and $3.2B of undrawn revolver. Bottom Line: "Paramount's standalone turnaround is getting easier to see… But every quarter spent waiting for WBD adds to the eventual acquisition bill."
Paramount's sales barely moved — up 1% to $6.9 billion — but its operating profit rose 27%. That gap is the story: the company is being run for cash rather than growth, and it is working. Management raised its full-year profit target and doubled the share of profit it expects to convert into actual free cash.
Paramount+ is the clearest example of the new streaming scoreboard. Yes, it added 2 million subscribers to reach 81.6 million — but the numbers that matter more are that revenue per subscriber rose about 12% and cancellations hit their lowest level ever. Advertising on the service grew more than 30%. A streaming business earning more from each viewer, and losing fewer of them, is worth far more than one adding cheap subscribers.
Traditional TV keeps shrinking — down 9%, with advertising down 14% — but Paramount is cutting costs faster than the revenue is falling, so profit in that division held roughly flat. Company-wide, it now expects more than $2.7 billion of permanent annual savings, and those savings are finally showing up as higher profit rather than just plugging holes.
So why Neutral? Because of the merger. Paramount is trying to buy Warner Bros. Discovery, and the delay has a running meter attached. It pays $8–9 million a month in fees just to keep the loan commitments alive, and — this is the big one — it owes Warner's shareholders roughly $650 million for every quarter the deal is delayed, if it eventually closes. With the US trial set for March 2027, that is several more quarters of accruing cost. And if regulators block it outright, Paramount could owe a $7 billion break fee.
In short: the business underneath is genuinely improving, and the price of the deal it is chasing goes up every quarter it waits. Analysis, not a recommendation.
In short: Context: Sechan cites Paramount as the "debt constrained competitor" whose leverage is "too significant for this industry" — one reason he's comfortable owning Netflix. No stance on Paramount itself.
In short: News segment (Pippa Stevens): California's AG is leading a 12-state lawsuit to block Paramount's $110B deal for Warner Bros. Discovery — combining two of Hollywood's five major film distributors could mean higher prices/fewer choices. No committee stance.
In short: 12 states led by California are suing to block Paramount's ~$110B acquisition of Warner Bros. Discovery (combining two of five major film distributors, ~20–27% share). Carlson thinks the states are "unlikely to succeed" — the DOJ already reviewed the same facts and "came to the exact opposite conclusion," and box-office share is too volatile to treat like cable market power.
Paramount is trying to buy Warner Bros. Discovery for about $110 billion, and 12 states (led by California) are suing to block it. The states' worry is concentration: this would merge two of the five big movie studios, and afterward just a few companies would control most film distribution. Carlson thinks the lawsuit probably fails. His main reason: the U.S. Department of Justice already looked at the exact same deal and reached the opposite conclusion, approving it.
He also thinks the states' argument is weak because box-office market share bounces around wildly year to year — one studio has a blockbuster (like Oppenheimer) one year and a flop the next — so it isn't the steady, durable market power you'd see in something like cable. Bottom line: he expects the merger to survive the state challenge.
21:23Now, moving on from this earnings week, we do have some massive stories to get into. First of all, Paramount Warner Brothers Discovery is being hit with a massive lawsuit. It finally happened. 12 states are suing them, including California, to block the merger. The attorney general of California is suing them with 12 other attorney generals challenging the 110 billion dollar acquisition.
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