Skydance Is Worth Less Than Half of What WBD and Paramount Were

By Grace Kim

Skydance Corp.'s market capitalization sits under $40 billion — less than half the combined value of the two companies that merged to create it. That's the uncomfortable math facing David Ellison, who completed the takeover of Warner Bros. Discovery after a yearlong battle.

The numbers tell the story plainly. As of Oct. 5, the last trading day for Warner Bros. Discovery and Paramount Skydance (PSKY) on Nasdaq, WBD had a market capitalization of $77.7 billion and Paramount stood around $11 billion. Paramount paid WBD shareholders $31.01666668 per share in cash, roughly $78 billion total, and assumed WBD's debt of $33.1 billion as of the end of June. The merged company's net debt now sits near $80 billion.

Investors, in short, appear to believe Ellison wildly overpaid.

What happened to the stock this week?

On Wednesday, Skydance's stock plunged 22%. The trigger was mechanical rather than a verdict on the business — mostly.

The sequence works like this. Skydance distributed about 471 million warrants (instruments giving holders the right to buy stock at a fixed price, here $12 per share, trading on the NYSE as "SKYD.WS"). On Tuesday after market close, the NYSE made a technical adjustment to Skydance's share price, cutting it by 19.4 cents to account for the issuance. The speculation, per the source, is that index funds sold off the warrants once they began trading. Automated trading systems read that as a sell-off event and pushed down the stock.

Skydance pushed back with its own figures. After Wednesday's close, the company said the warrants represent only around 9% of its Class B common stock, and that the implied value with the distribution would have put the market cap at $45.6 billion at the Class B price of $9.07 — with the warrants worth about $1 billion at $2.20 each, for total equity value of $46.6 billion. Thursday brought a partial recovery: the stock closed up 2.8% at $7.26, putting the market cap at $36.6 billion, excluding warrants that ended the day at $2.96 each.

What does this change for the company?

The practical question is whether the wobble matters beyond a rough week. Analysts and credit-rating agencies are skeptical that Skydance can hit management's projections. Ellison and his team must deliver $6 billion in annualized cost savings over the next three years while still investing in content — including more than 30 theatrical film releases per year. And the debt service is enormous on its own: interest payments will run north of $6 billion per year.

Governance adds another wrinkle. Skydance's Class B investors have no say in corporate matters. The Ellison family and RedBird Capital Partners hold 100% of the voting Class A shares. Those shares carry no intrinsic value, but each can convert into 1.5 Class B shares, according to a Skydance SEC filing.

Some market watchers see the drop as an entry point rather than a warning.

"There could be a buying opportunity in Skydance stock because the company's share count hasn't changed much with the warrant issuance," and "Skydance's outlook hasn't changed," Barron's associate editor Andrew Bary wrote in an Oct. 14 article. The warrants, with their $12 strike price, are currently underwater — but they retain value under option pricing models "due to the long maturity of 10 years and the possibility that Skydance stock will rally in the coming years," Bary added.

Whether that rally materializes depends on the only thing that hasn't been repriced yet: Ellison's ability to cut $6 billion a year without hollowing out the studio's output.