California AG calls off Paramount settlement talks, accuses company of ‘playing games’

By Anna Cooban, Brian Stelter, CNN

(CNN) — California Attorney General Rob Bonta has canceled a meeting that was scheduled for Monday over Paramount’s planned $110 billion takeover of Warner Bros. Discovery, CNN’s parent company.

The parties were due to discuss a potential settlement of the lawsuit that has frozen the media mega-merger in place.

But Bonta called off the meeting after the Wall Street Journal reported that lawyers for both sides held a prep session on Friday and discussed what the states might want from Paramount.

“Paramount did not maintain the confidentiality of that meeting,” Bonta said in a statement late Sunday night.

“Not only did Paramount leak the alleged substance of settlement discussions, but they misrepresented these discussions, demonstrating a lack of good faith,” Bonta said.

“As soon as Paramount stops playing games and engages sincerely, my office is happy to meet again,” he added.

The New York Times was first to report on Bonta’s decision.

Paramount responded Monday by saying, “We share AG Bonta’s concerns about the public discussions and misreporting that has surrounded this deal. As we have assured the Attorney General’s office, Paramount has not been the source of the leaks of any of our confidential discussions with the AG’s office.”

“We remain hopeful,” Paramount added, “and stand ready to continue good faith discussions to resolve the Attorneys General suit and move forward with our plans for increased competition and increased output to the benefit of the talent and entertainment workers.”

Paramount is trying to merge its movie studio and television operations with WBD, the parent of CNN, HBO, Discovery, the Warner Bros. studio and many other assets.

But a coalition of 12 Democratic state attorneys general, including California, filed suit last month to block the merger, arguing that it would violate anti-trust law and ultimately harm Hollywood by squeezing out competition. The Writers Guild of America filed a parallel lawsuit.

Paramount insists that the WBD deal is pro-competitive and says the deal’s opponents are driven by political concerns, including the prospect of CNN changing hands. Bonta has disputed those charges.

An antitrust trial is scheduled for March — an expensive wait for Paramount. Under the merger agreement, Paramount must pay WBD shareholders roughly $7 million for every day after September 30 that the deal has not closed.

So Paramount CEO David Ellison has been eager to start settlement talks. But the two sides appear to be far apart.

As soon as word of the expected Monday meeting leaked last Friday, Bonta said that any resolution would have to include “robust structural remedies” that would change the shape of the media mega-merger.

Structural remedies refer to divestitures, spin-offs and other changes to the makeup of the combined company – changes that might blow up the business logic of the deal in the first place.

“The main question is whether Paramount is prepared to settle with structural remedies,” LightShed Partners analyst Rich Greenfield told CNN.

“Paramount may be correct on the law,” he said, and correct to believe that it will eventually win in court. But the clock is working against the company, between the October “ticking fee” start, the March trial date, and the June merger agreement expiration, he said.

“The only way to settle before a trial to ensure they can close before the WBD agreement expires in June is to offer structural remedies for both film production and linear TV,” Greenfield asserted.

The Journal reported that Bonta wants Paramount “to divest some cable channels and commit to keeping its movie studio separate from Warner Bros.”

But selling the channels would impact the financial calculus of the deal.

Greenfield said “the other obvious challenge for selling cable networks is that there is not a robust market for them, so you would be selling them for a fraction of the price you are buying them for.”

And on the film studio side, “taking a hands-off approach to Warner Bros. is a nonstarter for Ellison,” the Journal reported, citing “a person familiar with his thinking.”

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CNN’s Diego Mendoza contributed to this report