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It’s day two of David Ellison’s Skydance Corp. merger gamble, and so far Wall Street isn’t eager to bet on it.
Shares in the post-merger Skydance, trading on the New York Stock Exchange under the ticker symbol “SKYD,”
were down nearly 8% as of 10:40 a.m. ET on Wednesday, hovering at around $8.82/share. That was already down from the $9.51 per share price it closed at on Tuesday, when it dropped roughly 2.7% for the day. Ellison closed his $111 billion merger of Paramount Skydance and Warner Bros. Discovery on Tuesday.
Wall Street analysts remain worried about the company’s financial viability, even as Ellison and co-CEO Ynon Kreiz told reporters on Tuesday they had “a multiyear plan” to manage the roughly $80 billion in debt the combined Paramount-Warner Bros. Discovery entity now carries following the merger.
TD Cowen analyst Doug Creutz wrote in a note Wednesday that investors should hold their shares of Skydance as the firm remained “quite cautious on the ability of the company and its management to avoid integration and execution problems that have bedeviled other major media mergers.”
“The risks (leverage, integration) of the combination with WBD are high; we remain skeptical that SKYD management will be able to create value from this deal when so many other major media deals have failed,” the note read.
That followed Fitch Ratings’ downgrade of Skydance’s credit rating on Monday ahead of the merger’s close. The firm said the “downgrade reflects materially higher leverage after the acquisition and significant execution and integration risks” as well as “uncertainty about the company’s ability to achieve its stated synergies, which are material to its deleveraging target.” The firm also warned the merged entity “faces structural pressure on linear [TV] revenues, streaming competition and hit-driven content risk.”
Next week, a big bunch of shares in Skydance Corp. will be available to holders of PSKY stock to purchase for an initial exercise price (strike price) of $12 per share — meaning that, for now, those are underwater.
The company’s board set Oct. 13 as the date to distribute 471.3 million warrants giving holders of PSKY Class B shares the option to purchase shares of SKYD Class B common stock. Each warrant entitles the holder to purchase one share of SKYD for $12.00; investors have up to 10 years to exercise the warrants. According to the company, on or about Oct. 13, it will distribute one warrant for each share of PSKY Class B common stock held as of Oct. 5.
The warrants issued to PSKY shareholders are intended to provide them the opportunity to purchase shares of Skydance’s Class B common stock “on similar terms” to those offered to the parties in the $47 billion equity syndicate backing the Warner Bros. Discovery deal, including David Ellison; his father, Larry Ellison; Gerry Cardinale, head of RedBird Capital Partners; LionTree; and the sovereign wealth funds of Saudi Arabia, Qatar and Abu Dhabi. Those equity investments in SKYD were priced at $12 per share.
The Ellison family and RedBird are the sole holders of Skydance’s Class A stock, giving them 100% control the voting shares. Warner Bros. Discovery shares ceased trading on the Nasdaq on Tuesday, and WBD shareholders received an amount in cash equal to $31.01666668 per share.
