Paramount Skydance has asked the Federal Communications Commission for permission to exceed foreign ownership rules for U.S. media companies to pave the way for its takeover of Warner Bros. Discovery.
David Ellison‘s media company is expecting to receive $24 billion from three Middle Eastern royal families, who would become part owners of the combined Paramount-Warner Bros. Discovery. Paramount on Monday asked the FCC for authorization to include the royal families and other foreign investors to help finance the company’s proposed $81-billion transaction.
U.S. law restricts foreign investors from owning more than 25% of a company that holds an FCC broadcast license — unless the commission determines that such an ownership structure would “serve the public interest.”
The FCC disclosed that Paramount had asked for such a “public interest” ruling and said Paramount wants the agency’s blessing to exceed the 25% foreign ownership cap.
The FCC, which did not indicate whether it will go along with Paramount’s request, initiated a review.
Paramount, in a statement, described the move as a “customary petition,” one that was required because of “the recent equity syndication.”
The Larry Ellison family will retain control of the company through its voting interests, the company said.
“When the transaction and equity syndication close, the Ellison family and RedBird [Capital Partners] will collectively hold the largest equity stake in the combined company and continue to be the sole owners of Class A Common Stock, representing 100% of the voting shares,” Paramount said.
The Ellisons must come up with $47.2 billion in equity and more than $60 billion in debt financing to pull off the deal, which is valued at $111 billion, including Warner Bros. Discovery’s existing debt.
The $24 billion expected from the sovereign wealth funds — representing the royal families of Saudi Arabia, Abu Dhabi and Qatar — would together represent about 49% of the equity in the new company. As part of the investor group, Saudi Arabia’s Public Investment Fund has agreed to contribute $10 billion, according to regulatory filings.
The FCC is involved because of Paramount’s ownership of CBS and 28 television station licenses granted by the FCC. That gives FCC Chairman Brendan Carr influence over whether the deal moves forward.
Paramount, as it is currently constituted, has foreign investors — although not enough to approach the ownership cap. Some of those investors are expected to roll over to the larger Paramount-Warner Bros. when that merger is complete.
Several Democrats in Congress, including Sens. Cory Booker (D-N.J.) and Elizabeth Warren (D-Mass.) have expressed alarm about the prospect of allowing foreign entities to hold such an enormous stake in a major U.S. media company, particularly one with two prominent news outlets: CBS News and CNN. The two senators previously cited national national security concerns.
Paramount has long maintained the foreign ownership issue was largely resolved because the Middle Eastern families would not have voting representatives on the company’s board.
However, the FCC on Monday noted that, under its rules to calculate foreign ownership levels, the agency considers “a voting interest equal to [an entity’s] equity interest for purposes of seeking specific approval.”
The FCC has allowed other media companies to have significant foreign investment. Years ago, the FCC agreed to allow Mexico City-based Grupo Televisa to own much of Univision, the U.S.-based Spanish-language company. More recently, struggling radio giant iHeartMedia Inc. gained FCC approval for foreign owners to buy up to 100% of the company’s stock.
To get the Warner Bros. Discovery deal over the finish line, billionaire Larry Ellison agreed to guarantee the entire $47.2 billion in equity needed. Warner Bros. Discovery board members had demanded that Ellison — one of the world’s richest men — backstop the deal’s financial structure due to initial concerns about it.
Despite the commitment, the Ellisons want the flexibility to include the Middle Eastern royal families and additional foreign investors.
Paramount wants “greater access to capital, including from foreign sources,” the FCC said in its notice.
The proposed Paramount-Warner Bros. would carry $79 billion in debt, making it one of the largest leveraged buyouts ever.
The Justice Department is separately reviewing whether the merger violates U.S. antitrust laws. State attorneys general, including California Atty. Gen. Rob Bonta, also are scrutinizing the transaction.
More than 4,000 filmmakers, actors and industry workers, including Ben Stiller, Jane Fonda, J.J. Abrams and Damon Lindelof, have signed an open letter calling for regulators to block the deal, saying it “would reduce the number of major U.S. film studios to just four.”
The Ellison family, which holds close ties to President Trump, has expressed confidence that the deal will be approved. Paramount also must garner the consent of regulators in markets where it conducts business, including Europe.
Paramount has said it expects to gather all of the regulatory approvals by this summer.
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