Paramount Skydance (PSKY) shares closed 3.3% lower on Friday after the company agreed to pause its proposed $81 billion merger with Warner Bros. Discovery (WBD), whose shares fell less than 1%. The transaction is now on hold until a court ruling is issued or until June 1, 2027, whichever comes first.

The pause follows a temporary restraining order from a California federal court that prevented the deal from closing within 28 days. Instead of proceeding to a preliminary injunction hearing scheduled for next week, Paramount reached an agreement with 12 state attorneys general to stop work toward closing the merger while an antitrust lawsuit moves forward.

The state attorneys general, led by California Attorney General Rob Bonta, are seeking to block the transaction on antitrust grounds. They argue that combining the two companies would reduce competition, increase prices, and harm consumers. New York Attorney General Letitia James described the pause as “a critical victory.”

California District Judge Araceli Martínez-Olguín said the combined theatrical movie market share of the two studios gave the court reason to believe the merger “is likely to violate antitrust laws.” The case underscores how large media combinations can remain vulnerable to state-level antitrust challenges even after securing federal and international approvals.

Bonta stated the states’ position directly: “We want no merger. That’s all we are seeking.”

Delay Adds Significant Costs

The delay carries financial consequences for Paramount. Its agreement with Warner includes a ticking fee, requiring payments to Warner shareholders of roughly $650 million per quarter beginning in October and continuing until the transaction closes.

If the deal is blocked entirely, or if the case is still unresolved by next June, Warner could require Paramount to pay a $7 billion termination fee. Paramount’s deadline to complete the transaction is March 4, 2027, with an automatic extension to June 4, 2027, under certain conditions.

Forrester Research Vice President Mike Proulx said the legal development complicates the process. “The path to either outcome just got longer, messier, and likely more expensive,” he said.

Regulatory Approvals and Remaining Obstacles

The merger has already cleared several regulatory reviews. The U.S. Justice Department approved the transaction last month, saying it would improve competition across the media sector. The European Union also approved the deal this week after Paramount agreed to minor concessions. Australia and China have approved the transaction as well, while the United Kingdom is expected to issue a decision next month.

Despite those approvals, the antitrust challenge brought by the states remains the obstacle preventing the deal from advancing. The dispute now turns on whether the court accepts the states’ argument that the combination would harm competition in theatrical movies and related media markets, or whether Paramount can show the transaction should be allowed to proceed.

Rich Greenfield, a media analyst at LightShed Partners, said that bypassing the preliminary injunction hearing could shorten the broader legal timeline. “Even if Paramount loses in District Court, this would accelerate the time frame for an appeal to the Ninth Circuit Court and potentially to the Supreme Court in 2027,” he said.

Greenfield also said Paramount “may have to make structural alterations that they never imagined making” in order to complete the transaction.

Paramount described Friday’s agreement as “a significant win,” saying it creates “a direct path to a trial based on the evidence.”

The Writers Guild of America is also opposing the merger, joining the 12 states challenging the deal.

Within Paramount, frustration is reportedly increasing as integration planning remains suspended, including plans to combine Paramount+ and HBO Max. Until the court process advances, the companies remain unable to move forward with closing or with the operational integration that was expected to follow the merger.