Skydance worth less than half the Paramount and Warner Bros. Discovery it replaced
The new Hollywood company is worth less than half the two businesses that created it.
Skydance Corp., formed by Paramount Skydance's takeover of Warner Bros. Discovery on October 6, closed on Thursday, October 15 with a market capitalisation — the total value of its listed shares — of $36.6 billion, excluding warrants. That compares with $77.7 billion for Warner Bros. Discovery and around $11 billion for Paramount on October 5, their last day of trading on Nasdaq, according to Variety.
The fall came fast. Skydance shares plunged 22% on Wednesday, October 14 after the company distributed about 471 million warrants. A warrant is a paper that gives the holder the right to buy shares later at a set price. Here, holders of Paramount Skydance's PSKY Class B shares received the option to buy stock in the new company for $12 per share.
The New York Stock Exchange made a technical adjustment to reflect the issue. It cut Skydance's share price by 19.4 cents to account for the warrants, which trade separately as SKYD.WS.
Skydance said the slide overstated the damage. The company said the warrants represent only around 9% of its Class B common stock. It argued the implied value with the distribution would have given it a market capitalisation of $45.6 billion, based on a $9.07 price for Class B stock.
Add the warrants, and the maths rises but not by much. Skydance put the value of the warrants at $2.20 each, or around $1 billion, for a total equity value of $46.6 billion. That is still well below the combined $88 billion-plus value of its predecessors. Shares steadied on Thursday, closing up 2.8% at $7.26.
The price tag for the deal was steep. Paramount paid Warner Bros. Discovery shareholders about $78 billion in cash, or $31.01666668 per share, and took on $33.1 billion of Warner Bros. Discovery debt held at the end of June. That left the merged company with net debt of nearly $80 billion.
The takeover, described by Reuters as a $110 billion deal, completed on October 6, according to a Skydance press release titled "Paramount Completes Acquisition of Warner Bros. Discovery, Creating a New Global Entertainment Leader, Skydance". Paramount Skydance had said in August it secured clearances in nearly 70 countries. Paramount had been poised to buy Warner Bros. Discovery after Netflix declined to raise its rival offer.
What makes this stand out is the gap between what was paid and what the market now says. For viewers, this means little changes on screen today. For the crews, writers' rooms and channels underneath, it matters who holds the debt and who signs off the next slate.
Skydance describes itself as a next-generation global media and entertainment company with three segments: Studios, Direct-to-Consumer, and TV Media. Its leaders are Chairman and CEO David Ellison and Co-CEO Ynon Kreiz.
