A federal judge on Monday temporarily stopped Paramount from completing its $111 billion purchase of Warner Bros. Discovery while she considers a lawsuit that argues the deal violates antitrust laws, a disruption to one of the biggest media deals in history.
Judge Araceli Martínez-Olguín of the U.S. District Court for the Northern District of California issued a temporary restraining order that was requested by 12 states that have sued to block the deal.
The pause will last only 14 days. But in her order, Judge Martínez-Olguín raised the prospect of a much longer delay. She said she would weigh, at a hearing in early August, whether to grant an injunction, which could halt the deal from closing for months.
The lawsuit is one of the final hurdles in Paramount’s persistent push to buy Warner Bros. Discovery and create a Hollywood giant. The merger would unite under one roof two major movie studios, the streaming services HBO Max and Paramount+, and networks including CBS and CNN. David Ellison, the tech scion who runs Paramount, has mounted a monthslong campaign to acquire Warner Bros., ultimately outbidding Netflix after proposing a handful of escalating offers.
A prolonged pause in the merger could be costly for Paramount. The company agreed to pay Warner Bros. Discovery shareholders a fee of $650 million for every quarter that the deal does not close, beginning in October. That puts an expensive shot clock on the deal, giving Paramount an extra incentive to resolve the states’ lawsuit quickly.
Paramount argues that the deal will help the company compete with streaming services like Netflix and Amazon. But attorneys general in several states, led by Rob Bonta of California, have argued that the deal would give Paramount outsized dominance over the production of films in wide release; tentpole movies, which are the costly would-be blockbusters that sustain studio revenues; and basic cable channels. The states previously said the deal could close as early as July 22.
“This is a critical first win in our case to ensure this megamerger never sees the light of day,” Mr. Bonta said in a statement.
A spokeswoman for Paramount, Melissa Zukerman, said the evidence would show that the states’ claims “are without merit.”
“This merger is lawful, pro-competitive, and will benefit consumers, creators, workers and the entertainment industry,” she said.
Paramount argued at a court hearing before Judge Martínez-Olguín last week that the states’ request for a temporary restraining order was unnecessary and that it planned to defend its deal in court.
But Judge Martínez-Olguín disagreed. She said the states had made “a strong showing that the transaction will substantially lessen competition” in the market for movies in wide release, and added the deal would be “be difficult, if not impossible, to unwind” if it was completed.
Judge Martínez-Olguín said that even if Paramount had to pay the fee to shareholders as a result of delays, it did not outweigh the potential harms to competition if the merger were to go forward.
States are taking a more active role in opposing mergers they say violate the law. In April, a group of states obtained an injunction to stop the broadcasting company Nexstar from buying its rival Tegna. But the deal had already closed, the companies said.
Bill Kovacic, a former Republican chairman of the Federal Trade Commission, said that the ruling was a “big achievement for the states.”
“This gives them the high ground going ahead,” Mr. Kovacic said. “And it does set up this deeper examination and deliberation regarding the transaction, which is also good for their cause.”
It is rare, but not unheard-of, for states to try to block a merger on their own. In 1988, the F.T.C. greenlit the acquisition of the supermarket chain Lucky Stores by its competitor American Stores. California sued on the grounds the deal would harm competition.
A district court issued an injunction to block the deal, which was ultimately upheld by the United States Supreme Court. In 1990, American Stores agreed to sell more than 150 stores to settle the case with California.
Paramount has hired Paul Clement, a top Supreme Court litigator, to bolster its legal team in the case, which could end up in appeals court.
“They’re in for a dime, in for a dollar,” Mr. Kovacic said. “They are braced to proceed to the next step and fight the appeals.”
Benjamin Mullin and Lauren Hirsch contributed reporting. Seamus Hughes contributed research.
