It’s the second day of David Ellison’s Skydance Corp. merger bet, and so far Wall Street isn’t eager to bet on it.
Skydance shares, which trade on the New York Stock Exchange under the ticker symbol “SKYD” after the merger, were down about 8% as of 10:40 a.m. ET on Wednesday, at about $8.82/share. That was already below Tuesday’s closing price of $9.51 per share, when it declined about 2.7% for the day. Ellison closed the $111 billion merger of Paramount Skydance and Warner Bros. Discovery on Tuesday.
Wall Street analysts remain concerned about the company’s financial viability, even though Ellison and co-CEO Yoann Craze told reporters Tuesday they have “a multiyear plan” to manage the roughly $80 billion of debt the combined Paramount-Warner Bros. Discovery unit now faces following the merger.
TD Cowen analyst Doug Crutz wrote in a note Wednesday that investors should hold their shares of Skydance because the company is “highly cautious on the ability of the company and its management to avoid the integration and execution problems that have plagued other major media mergers.”
The note reads, “The risks (leverage, integration) of combining with WBD are high; we doubt that SKYD management will be able to create value from this deal when several other major media deals have failed.”
Fitch Ratings downgraded Skydance’s credit rating on Monday ahead of the closing of the merger. The firm said the “downgrade reflects materially higher leverage following the acquisition and significant execution and integration risks” as well as “uncertainty regarding the company’s ability to achieve the stated synergy, which is critical to its deleveraging target.” The firm also warned that the merged entity “will face structural pressures linearly [TV] Revenue, Streaming Competition, and Hit-Driven Content Risk.”
Next week, a big bunch of shares in Skydance Corp. will be available for PSKY stock holders to buy at an initial exercise price (strike price) of $12 per share – meaning that, for now, they’re underwater.
The company’s board set October 13 as the date for distributing 471.3 million warrants giving holders of PSKY Class B 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 companyOn or about October 13, it will deliver one warrant for each share of PSKY Class B common stock held through October 5.
The warrants issued to PSKY shareholders are intended to provide them with the opportunity to purchase shares of Skydance’s Class B common stock “on the same terms” that were offered to parties in the $47 billion equity syndicate supporting the Warner Bros. Discovery deal, including David Ellison; his father, Larry Ellison; Gerry Cardinale, principal of Redbird Capital Partners; lion tree; and the sovereign wealth funds of Saudi Arabia, Qatar and Abu Dhabi. The value of those equity investments in SKYD was $12 per share.
The Ellison family and Redbird are the sole holders of Skydance’s Class A stock, giving them 100% control of the voting shares. Shares of Warner Bros. Discovery closed trading on the Nasdaq on Tuesday, and WBD shareholders received cash equivalent to $31.01666668 per share.