Paramounts Savvy Legal Maneuver for Warner Bros. Alarms Democratic Senators

Something that went a tad undernoticed in Paramount‘s announcement that it had added sweeteners to its offer for Warner Bros. Discovery: Compliance with what’s known as a second request for information in the Justice Department’s probe into the hostile takeover bid.

In normal circumstances, such compliance can take over a year. The scope of the production is broad, and companies often barter with the government to limit what they have to turn over. There’s good reason. The information learned in these documents and communications can form the foundation of a merger challenge. The process typically involves a lengthy back-and-forth aimed at limiting legal exposure. But Paramount got it done in a couple months, an extraordinarily fast turnaround for a multibillion dollar merger.

Why? To put the government on a time crunch in the event Paramount knocks out Netflix and wins the bidding war for Warner Bros. Discovery. The Justice Department will now have what appears to be just 15 days to file a lawsuit to block the deal before it’s legally allowed to close under that specific regulatory hurdle, though there are other considerations at play, including foreign clearances. Prosecutors can sue after the deal closes, but the playing field looks different at that point.

In a letter to David Ellison, a group of Senate Democrats nodded to Paramount’s substantial compliance with regulatory hurdles. They directed him to preserve all communications involving President Donald Trump, lobbyists and the Justice Department, including those involving the Justice Department’s second request for information.

“Paramount’s apparent confidence that a politically sensitive transaction will clear without difficulty warrants serious scrutiny,” wrote Sen. Cory Booker (D-N.J), joined by Senate Minority Leader Chuck Schumer and Sens. Amy Klobuchar (D-Minn.), Elizabeth Warren (D-Mass.), Richard Blumenthal (D-Conn.), Mazie Hirono (D-Hawaii), Peter Welch (D-Vt.) and Dick Durbin (D-Ill).

In a statement, David Hyman, Netflix’s chief legal officer, said the “facts are that routine HSR milestones do not signal DOJ approval nor that any decision has been made,” referring to the Hart-Scott-Rodino Act, the law governing the federal review process for mergers. “They have not secured approvals needed to close and they are a long way from doing so.”

Of note: The architect of Paramount’s merger blueprint is Makan Delrahim, Trump’s former Assistant Attorney General for Antitrust. One atypical move he’s made is filing for approval of the deal before it’s even done. There are legal and PR considerations here. Paramount has positioned this strategic play as underscoring its confidence that it provides a “much shorter and more certain path to completion.”

Under reporting requirements to antitrust enforcers, companies are obligated to provide notice of large mergers. The agencies may follow up with a second request when more information is needed to decide whether they’ll challenge the deal. Once those documents and communications are provided, the clock starts to file a lawsuit.

A caveat: the expiration of the clock doesn’t mean that a lawsuit won’t be filed. Companies close at their own risk.

Paramount could be betting that it’ll soon prevail in the jockeying for Warner Bros. Discovery and that it can overwhelm the Justice Department with a flood of documents its lawyers won’t have the time to properly review, though prosecutors likely know they have more time than it appears since Paramount still has to obtain the necessary approvals from foreign regulators. It could also be thinking that the Justice Department will just greenlight the deal, in which case it can now closer faster than would ordinarily be possible since it’s already met merger notification obligations.

On that front, the Senate Democrats are concerned with what appears to be a surge of lobbying at the Justice Department. Gail Slater, the agency’s top competition cop, stepped down last week amid mounting tension over her authority to pursue cases against large companies cozying up to the administration and going above her head to strike deals with higher-ups. The ever-savvy Delrahim has bona fides in this area, having served as a lobbyist for Google, Comcast and Caesars Entertainment.

In the letter, Ellison was asked to provide the names of all lobbyists employed by Paramount and their communications with Justice Department officials to encourage a Netflix investigation.

Next up for Paramount as it reengages with Warner Bros. Discovery on a deal will be what the David Zaslav-led company thinks of its “best and final” offer.