Key Points
This is the pending acquisition of Warner Bros. Discovery by Paramount Skydance.
The suit was brought by the attorneys general of 12 states.
On Monday, a judge's ruling that affected a peer company of IMAX (NYSE: IMAX) put pressure on the big-screen film exhibitor and technology specialist. Investors were skittish about buying entertainment stocks, and IMAX closed the day nearly 2% down in price.
The dance is halted
A district court judge in California ordered Paramount Skydance to pause its planned acquisition of fellow major Hollywood studio Warner Bros. Discovery. The case was brought by the attorneys general (AGs) of 12 states; sensibly enough, as it's where the entertainment industry is still centered, California led the effort.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now, when you join Stock Advisor. See the stocks »
Image source: Getty Images.
In her ruling, Judge Araceli Martinez-Olguin opined that the states had made a "strong showing" in support of their argument that, if consummated, the deal would be unlawfully anti-competitive.
Paramount issued a statement after the ruling to express strong disagreement.
"This merger is lawful, pro-competitive, and will benefit consumers, creators, workers, and the entertainment industry," the company wrote. "We will continue to vigorously defend the transaction and will look forward to the hearings on the substance of the state AGs' action."
A winner either way
The situation affects IMAX because the major studios are the indispensable sources of content for its exhibition business. Paramount Skydance has pledged to produce 30 significant films annually if the Warner deal goes through, which would certainly keep IMAX theaters busy.
Even though IMAX makes coin with other activities, such as technology licensing, the exhibition business is a crucial one for the company. Yet while Monday's investor reaction was understandable, both Paramount and Warner Bros. will continue to depend on the company's large screens for their tentpole releases, no matter what the fate of their courtship.
Personally, I'd be a buyer rather than a seller of this stock.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Warner Bros. Discovery. The Motley Fool has a disclosure policy.