FCC clears 49.5% foreign stake in Paramount's Warner Bros. takeover

Paramount Skydance can now take Gulf sovereign money past the 25% foreign-ownership cap that applies to U.S. broadcast parents, after the FCC's media bureau ruled Thursday that a tightly limited, non-voting structure serves the public interest. The decision clears the communications-law petition hanging over the financing of its all-cash purchase of Warner Bros. Discovery. The target still trades as a live merger spread, not as cash: the remaining wall is the antitrust suit Paramount itself flagged in August, brought by California and 11 other states.

What the FCC actually allowed

The Media Bureau granted Paramount Global's petition under Section 310(b)(4) of the Communications Act, the provision that lets the commission waive the 25% foreign-equity and foreign-voting benchmarks for a U.S. parent of broadcast-license holders. The petition covered Paramount and the subsidiaries that operate its 28 U.S. television stations. That is why broadcast-ownership limits applied at all.

Paramount has disclosed that foreign investors would hold 49.5% of the combined company's equity after the Warner Bros. Discovery deal, including 38.5% from funds tied to Saudi Arabia, Qatar and Abu Dhabi. That 49.5% is Paramount's expected mix at closing, not a ceiling the bureau wrote. The named vehicles in the April petition were Saudi Arabia's Public Investment Fund, L'Imad 1st SPV 2 Exempt RSC Ltd., an Abu Dhabi government-linked vehicle, and QIA TMT Holding LLC, an investment vehicle of the Qatar Investment Authority. The ruling permits up to 100% aggregate indirect foreign equity and grants those named investors advance approval to raise their indirect stakes to a non-controlling 20% each, still without votes. People familiar with the financing have put those Gulf commitments at about $24 billion.

The bureau's declaratory ruling says the foreign investors may hold no voting stock and “will not have any influence, direction, or control over or provide any commentary or guidance on” Paramount's content decisions or company management, and it bars them from non-public data on U.S. persons. The interests are to be non-voting stock without governance or information rights. Paramount must come back to the commission before granting additional rights, including votes, and before aggregate foreign voting interests exceed the 25% statutory benchmark. The grant is conditioned on a September 4 letter of agreement with the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector, known as Team Telecom, and on the FCC's foreign-ownership monitoring and reporting rules. Day to day, the structure depends on the investors remaining silent and on Paramount staying inside that grant.

Democratic Commissioner Anna Gomez had objected in May, saying there were “serious, unresolved questions about how this foreign investment may jeopardize national security” and that the public “deserves to know who owns the airwaves that carry their news.” Senate Democrats, including Elizabeth Warren, had separately asked the Treasury's Committee on Foreign Investment in the United States to review the Gulf capital. The Team Telecom letter and the no-influence terms are what Thursday's order puts against those objections.

Voting control stays where the April petition put it. The Ellison family and RedBird Capital Partners hold 100% of Paramount Skydance's Class A voting stock. David Ellison, the company's chairman and chief executive, and a vehicle of the Lawrence J. Ellison Revocable Trust were disclosed as the holders of those voting interests. The Gulf money buys a slice of the equity. It does not buy a microphone.

The $31 cash still sits behind a state lawsuit

Under the February 27 merger agreement, Paramount pays $31.00 in cash for each Warner Bros. Discovery share, a deal Paramount valued at $81 billion of equity and $110 billion of enterprise value. There is no stock in the consideration for target holders. The cash is backed by $47 billion of equity, fully committed by the Ellison family and RedBird, with new Paramount Class B shares issued at $16.02, and $54 billion of debt commitments from Bank of America, Citigroup and Apollo. Existing Paramount stockholders may join a rights offering of up to $3.25 billion of Class B stock at the same $16.02 price. The Gulf funds sit inside that equity syndication as assignees of Class B subscription rights, not as an extra check on top of the $47 billion.

On August 14, Paramount said it had the merger-agreement clearances from 68 jurisdictions, including the Justice Department, the European Union, the United Kingdom, China, and Mexico. It called the state attorneys general the final obstacle.

A federal judge in Oakland has set trial on the states' Clayton Act case, joined by the Writers Guild of America, for March 2 through March 19, 2027. Paramount has agreed not to close until five days after that trial ends, or June 1, 2027, whichever comes first. California Attorney General Rob Bonta, who is leading the coalition, said Thursday he is open to settlement talks if Paramount comes in good faith; a court-set conference is scheduled for October 14 and 15.

If the deal is still open after September 30, Warner Bros. Discovery holders accrue extra cash of $0.25 a share for each 90-day period, measured daily, until closing. Paramount's filings also provide for a $7.0 billion regulatory termination fee to Warner Bros. Discovery if the combination fails on antitrust or other regulatory grounds.

Where the stocks and funds sit

Warner Bros. Discovery closed Thursday at $28.24, up 0.6%. Five days after the scheduled March 19 trial end, the earliest close on that calendar, the ticking fee would add $0.49 a share and lift cash consideration to $31.49. Thursday's close sits $3.25, or 10.3%, below that contract. Paramount Skydance Class B closed at $10.62, down 4.6%, on 28.6 million shares, well above its 10.3 million-share average turnover, and 34% below the $16.02 Class B issue price in the equity commitment. Barron's reported Paramount as one of the S&P 500's worst performers Thursday after Barclays analysts warned of execution risk in the merger. Over the past year Warner Bros. Discovery is up 55%; Paramount Class B is down 38%.

The fund built for this spread is New York Life's merger-arbitrage ETF MNA, which holds announced takeover targets and which etf.net grades B in that category.

State Street's Communication Services Select Sector SPDR AXLC, which holds the S&P 500's media, telecom and internet names and which etf.net grades A in that category, had Warner Bros. Discovery as its eighth of 24 holdings at 4.53%, a $1.04 billion line. Paramount Class B was 0.63%. For MNA, Thursday's order is a financing clearance on a position that still turns on Oakland; in AXLC, Warner Bros. Discovery is one name among 24.

Until Oakland moves, a late-March close would pay $31.49 and the market is $28.24.