Shares of Skydance Corporation fell 8% Wednesday, extending their decline into a second day after the completion of the company’s $111 billion acquisition of Warner Bros. Discovery.
Skydance began trading on the New York Stock Exchange under the new ticker “SKYD” on Tuesday, replacing the Paramount Skydance listing on the Nasdaq exchange.
The stock fell 2.7% on its first trading day and continued lower Wednesday, hovering around $8.70.
The slide comes as investors assess the financial burden and execution challenges facing the newly combined media company, which is set to drastically alter the US media landscape.
Debt adds to investor concerns
The transaction creates a media group with a broad portfolio that includes Paramount and Warner Bros. movie studios, as well as HBO Max, CBS News and CNN.
While the acquisition gives the company a mammoth collection of media assets, the deal has also raised concerns about its debt load and the cost of integrating the two businesses.
The new entity has more than $80 billion in debt, making its balance sheet a major focus for investors.
Recently, Fitch Ratings and S&P Global Ratings downgraded the company’s long-term credit rating to BB from BB+.
The downgrade could leave Skydance facing higher borrowing costs and greater vulnerability as it works to integrate the businesses and deliver on its financial targets.
Analysts advise caution
Analysts have also expressed concerns about the risks involved in executing the merger.
TD Cowen analyst Doug Creutz maintained a hold rating while advising skepticism. UBS reiterated its sell rating, citing the company’s large debt burden.
The caution contrasts with an upbeat tone from CEO David Ellison, who has emphasized the potential of the combined company while also indicating that cost-cutting measures could affect employees.
“The goal was never simply to add more production capacity, brands or IP. It was to unite the talent, resources and capabilities of these companies into a stronger competitor, one with the scale to take on the biggest players in our industry. Together, we will give these iconic studios the opportunity to win for generations to come,” the company said in a note cited by Variety.
At the same time, the company warned that integrating the two businesses would involve difficult decisions affecting its workforce.
“Integrating two companies will bring change, including difficult decisions that affect our workforce,” the company wrote in the memo.
The comments point to layoffs as one potential avenue for reducing costs as the newly combined company seeks efficiencies.
Scale and savings in focus
Skydance is targeting mid-single-digit growth through 2030 and aims to generate more than $6 billion in annualized cost savings within three years.
The ability to deliver those savings while expanding its streaming operations is going to be key.
UBS analyst John Hodulik said shareholder value would depend on whether management can grow the streaming business faster than the decline in its linear television business.
The company will also seek to leverage the combined libraries and media properties of Paramount and Warner Bros. Discovery, creating a larger content portfolio that could be difficult for competitors to match.
For investors, however, the immediate focus remains on whether Skydance can manage its heavy debt burden, execute the integration, and achieve its stated growth and cost-saving targets.
The skepticism is visible as the shares have so far fallen in both sessions since the Warner Bros. Discovery deal was completed.
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