Investing.com -- Paramount Skydance Corp. received conditional approval from the European Union on Wednesday for its $110 billion acquisition of Warner Bros. Discovery Inc., marking progress for the deal as it faces legal challenges in the United States.

The European Commission approved the transaction after Paramount agreed to terminate its distribution agreement with Universal Pictures in Europe. Under the EU commitments, Paramount has 13 months from the deal's closing date to exit the Universal agreement.

The company will divest its stake in United International Pictures, a European film distribution joint venture. Paramount also agreed not to enter any film distribution agreement with Universal in Europe for 10 years and will not transfer distribution of Warner's films to its own theatrical distributor.

"These commitments fully address the competition concerns identified by the commission by ensuring that the films of the merged entity will not be distributed jointly with those of Universal or Disney," EU competition regulators said in a statement.

Paramount Skydance shares traded 2.5% higher following the announcement. Warner Bros. Discovery shares remained roughly flat.

Paramount agreed to the acquisition in February after outmaneuvering Netflix Inc. in a bidding war. The company secured the deal under Chief Executive Officer David Ellison.

The US cleared the transaction, but California and 11 other states filed a lawsuit on July 13 to block the merger. The states argue the combination of two of the five largest studios would harm competition in film and cable TV distribution.

A federal judge temporarily paused the deal for 14 days, delaying Paramount and Warner Bros.' plans to close it this week. If the transaction does not close by the end of September, Paramount must pay late fees to Warner Bros.' shareholders of approximately $7 million per day.