Paramount Skydance has reached a settlement with California and 11 other states that had filed a lawsuit to block its $110 billion acquisition of Warner Bros Discovery, a source familiar with the matter said Monday. The agreement marks a significant step toward finalizing the merger, which would create one of the largest media conglomerates globally and reshape the entertainment industry.

The settlement includes measures aimed at preserving editorial independence at CNN and CBS, two news outlets owned by the companies. Specifically, it calls for the establishment of independent editorial boards for both networks. Additionally, Paramount agreed to a penalty of $30 million per film for any failure to meet its commitment to release at least 30 movies annually.

While representatives from Paramount, Warner Bros Discovery, and California Attorney General Rob Bonta’s office did not immediately respond to requests for comment, the deal caps months of legal and regulatory scrutiny. The states’ lawsuit, led by California, argued that the merger would reduce competition and consolidate excessive market power in film, television, streaming, and news, potentially resulting in higher consumer prices.

Paramount’s shares surged more than 8% Monday, with Warner Bros Discovery climbing over 10%, reflecting investor confidence in the progress toward closing the deal. Sources indicated that the companies and states could finalize the settlement as soon as this weekend. The resolution will also help Paramount avoid paying a $7 million-per-day penalty to Warner Bros shareholders if the transaction closes past the original September 30 deadline.

Although federal regulators under the previous administration had cleared the merger, opposition from several states delayed approval. The legal challenges stemmed largely from concerns over market concentration and the potential impact on employment and content production. Paramount and Warner Bros Discovery projected $6 billion in cost savings from the merger, which could involve job reductions affecting Hollywood workers and staff at CNN and CBS. The merged entity is expected to carry approximately $80 billion in debt.

International regulators, including those in the European Union and the United Kingdom, have already approved the transaction. However, some obstacles remain. The Writers Guild of America (WGA) has filed a separate lawsuit seeking to block the deal, arguing it would suppress wages and degrade working conditions for film and television writers by reducing competition. The union warned that the combined Paramount-Warner Bros entity would have heightened leverage to lower costs by cutting writer pay and output.

Market analysts suggest the WGA’s legal challenge is unlikely to succeed. Morningstar analyst Matthew Dolgin noted that while trade unions pose the final hurdle, the requirement for Paramount to post a $1.88 billion bond as a condition of continuing the merger limits the unions’ ability to delay the closing. The Writers Guild of America did not provide comment when contacted.

The parties continue to work toward securing all necessary approvals and addressing remaining legal concerns before completing the merger.