David Ellison moved mountains and fought off many detractors in his quest to acquire Warner Bros. Now, as the transition is set to formally close on Oct. 6, the high-wire act is about to begin. The enlarged entity, to be known as Skydance, will carry a nearly unprecedented level of debt for a large media M&A transaction — a nearly $80 billion chunk — and that leverage will weigh on virtually every decision the company makes over the next three years.
By comparison, when Discovery bought WarnerMedia from AT&T, it assumed $43 billion of AT&T’s debt, leaving the new WBD with about $53 billion in gross debt as of June 2022. Skydance has a tight runway through the end of 2029 to significantly pare down the long-term debt on the company’s books. If Skydance doesn’t hit some very specific targets laid out in its agreements with lenders for reducing its overall leverage ratio, Larry Ellison, the software billionaire and the father of the Skydance CEO, will be on the hook to make up the difference out of his personal wealth.
Analysts from three major credit ratings agencies — Moody’s Ratings, S&P Global Ratings and Fitch Solutions’ CreditSights — say the company is walking a tightrope of having to manage a difficult post-deal integration process at a time when the entertainment landscape continues to evolve in unpredictable ways. Skydance is counting on a of things to right for its key units — from Paramount Pictures and Warner Bros. to HBO Max and Paramount+ to CNN and CBS — while it also faces competitive pressure to invest big in content and improved technology for the aging infrastructure at the legacy Paramount and Warner Bros. in particular. RELATED CONTENT: Skydance takes over Warner Bros.
Discovery: Everything You Need to Know Barring a box office miracle or windfall of streaming subscribers in the coming months, Skydance is projected to operate for all of 2027 with negative cash flow — which will make it harder to be opportunistic in the marketplace. It’s not an impossible feat. But it will require enormous discipline across the organization to focus on priorities and most important, new pipelines for profit.
And then in ’29 it can get better. That’s the time frame that they have to do it in.” The company has committed to achieving $6 billion operational savings over three years. That process will be hard on the organization as much of it will come from staff cuts to address overlapping operations and redeployment of resources.
I would say post-Q3 into the end of the year, and then early next year when they report Q4, we’re hoping to see a nice layout of the strategy and the timelines around that.” Robert Fishman, senior analyst for MoffettNathanson Research, also sees Skydance leaders operating in a tough environment of balancing the need to grow the streaming engines — HBO Max and Paramount+ — without starving the linear channels that still generate the majority of the company’s cash flow. The debt piled on to the new company’s balance sheet has sparked intense scrutiny in business and geopolitical circles, although Skydance has consistently assured leaders and Wall Street that the foreign entities will have no governance role or operational influence on the company. For media biz analysts, the big question that is unanswerable in the short term is how David Ellison and his newly recruited co-CEO Ynon Kreiz can make the merger math work.
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