Paramount cleared to close Warner Bros. deal; WBD ends 5 cents below the $31 offer as Kreiz is named co-CEO

A federal judge on Wednesday approved the settlement between Paramount Skydance and a group of state attorneys general, allowing Paramount to close its $110 billion takeover of Warner Bros. Discovery, NBC News reported. U.S. District Judge Araceli Martínez-Olguín signed off on terms that require the combined company to release at least 30 films a year, set up an editorial board overseeing CNN and CBS News, and invest more than $1 billion in U.S. film production and worker training.

Hours later, Paramount chief executive David Ellison named Ynon Kreiz, who is leaving Mattel after eight years as its chief, as co-CEO of the combined company, according to Paramount's release. Kreiz starts October 5 and will run day-to-day management and the integration. Ellison keeps strategy, creative direction, talent, technology and capital allocation. Kreiz joins the board at closing. CNBC first reported the appointment.

The spread is gone

Under the merger agreement, Paramount pays $31.00 a share in cash for Warner Bros. Discovery. WBD closed Wednesday at $30.95, according to Nasdaq, a gap of 5 cents, or 0.16%. Merger arbitrage traders who held the stock through the regulatory fight have nearly nothing left to collect on the price.

What is left is the ticking fee. The agreement pays WBD holders 25 cents a share for each quarter, measured daily, if the deal is not closed by September 30. That works out to about a quarter of a cent per share per day, so a closing in the first week of October adds only a cent or two. NBC News put the fee at more than $600 million a quarter across all shares, which is the cost Paramount avoids by closing quickly.

The part the headlines skip: Paramount's own stock

The deal was funded in part by $47 billion of new Paramount Class B shares at $16.02 each, backed by the Ellison family and RedBird Capital Partners, according to the February announcement. Paramount's Class B shares closed Wednesday at $10.33, up 3.4% on the day but about 35% below that issue price. The investors writing the equity check are, on paper, well under water before the combined company has existed for a day.

That gap is why the choice of an operator matters. Paramount is promising more than $6 billion of run-rate synergies and a combined 200 million-plus streaming subscribers, and it has already raised large amounts of debt to pay for the deal, as we covered in the pricing of its junk bonds near 9%. Kreiz's job, integrating two studios, two streaming services and two news operations, is where most of those savings have to come from.

Mattel goes the other way

Mattel shares closed at $12.66, down 4.2%, on the day its chief executive's move was confirmed. Mattel had earlier named Condé Nast's Roger Lynch as its next CEO; we covered that here.

Sources: Paramount press release; Paramount-WBD merger announcement (SEC); NBC News; CNBC; Nasdaq. Spread and ticking-fee figures are our calculations. This is market information, not investment advice.