Shares of Skydance plunged 25% on Wednesday after the David Ellison-led media giant issued 471 million warrants that gives holders in Paramount Skydance’s Class B stock the opportunity to acquire shares in the new company after its merger with Warner Bros. Discovery.
The warrants provide Paramount Skydance shareholders with similar terms to the combined company’s equity investors, including CEO David Ellison and Oracle co-founder Larry Ellison, RedBird Capital Partners’ Gerry Cardinale, LionTree and three Middle Eastern sovereign wealth funds.
As of the time of publication, Skydance shares are trading at around $6.78 apiece, with a market capitalization of around $34 billion. The company’s listing moved from the Nasdaq to the New York Stock Exchange on Oct. 6.
The warrants were issued to Paramount Skydance stockholders at an initial exercise price of $12. If all of those warrants were exercised, that would raise about $5.65 billion for the company. It would also increase the total share count, diluting the ownership of current shareholders. It’s unclear how many warrants have been exercised thus far.
In connection with the distribution of stock warrants, the NYSE adjusted the official closing price of Skydance’s Class B common stock downward by $0.19368 per share (from approximately $9.27 to approximately $9.07) based on the official closing price of the warrants of $2.20.
Skydance is targeting $6 billion in cost savings within the first three years after the $110 billion deal’s closing. The combined company is carrying around $80 billion in debt and generates nearly $70 billion in revenue. It is targeting more than $10 billion in free cash flow by 2030.
By 2029, Skydance is targeting a leverage ratio of three times, which will be achieved through combination of content investment and more than $6 billion in merger cost savings in areas like merging streaming tech stacks, procurement and consolidating the company’s real estate footprint.
Those savings will also include an unspecified number of layoffs, though leadership has insisted the majority will come from “non-labor” sources. A Los Angeles County-commissioned study has estimated that nearly 4,500 local film and TV jobs could be impacted over the next three years.
In addition to realizing synergies and generating free cash flow, credit rating firm Fitch previously said that reaching that leverage target could require asset sales or issuing new equity.
It downgraded the company’s credit rating due to “materially higher leverage” and “significant execution and integration risks,” as well as uncertainty about Skydance’s ability to reach its stated synergies. It also warned the company faces “structural pressure on linear revenues, streaming competition and hit-driven content risk.”
“We’ve measured this incredibly carefully,” David Ellison said during a media event following the merger’s closing. “We absolutely have the ability to manage the debt and de-lever while investing for growth.”
