The costly merger of Paramount and Warner Bros. backfired; The value of Skydance reached below 40 billion dollars

This article first appeared on Gimfa site Gimfa: news, reviews of games, cinema, movies and series in the link of the expensive merger of Paramount and Warner Bros. backfired; The value of Skydance has been written below 40 billion dollars. David Ellison, the CEO of Skydance, after a year of competition, finally managed to take over Warner Bros. Discovery; But the start of his newly merged company has not been very promising on Wall Street

David Ellison, the CEO of Skydance, after a year of competition, finally managed to take over Warner Bros. Discovery; But his newly merged company has not had a promising start on Wall Street.

Wall Street investors now apparently believe Ellison overpaid for the deal and that the new company, called Skydance, is worth far less than the $78 billion Paramount paid to buy Warner Bros. Discovery.

On the last trading day of Warner Bros. Discovery and Paramount Sky Dance on the Nasdaq Stock Exchange, on October 5, Warner Bros. Discovery's market value had reached $77.7 billion, and Paramount's market value was estimated at $11 billion. However, Skydance's market value has now fallen to less than $40 billion; A figure that is even less than half of the total value of the two companies.

Skydance shares fell 22% on Wednesday. This happened after the company distributed about 471 million stock options. The bonds allow holders of Class B shares of Paramount Skydance to purchase shares of the new company at a price of $12 per share. Some speculations indicate that some funds sold their assets in this sector after the start of trading of these bonds. This action was probably interpreted by the automated trading systems as a sign of a wave of stock sales and eventually led to a decrease in Skydance's stock price.

Skydance's market value fell to around $36 billion after the stock price plunged on Wednesday. However, the company's shares recovered slightly on Thursday and closed at $7.26, up 2.8%. This increase brought Skydance's market value to about 36.6 billion dollars. Despite the impact of the warrant issuance on market volatility, there are broader concerns about Skydance's future. Some analysts and credit rating agencies doubt the company's ability to achieve the financial goals announced by its managers.

David Ellison and his management team must prove to Wall Street investors that they can save the new company $6 billion annually over the next three years; That too without reducing the investment in content production and other business sectors. Skydance plans to release more than 30 movies in cinemas every year and simultaneously develop the activities of other departments of the company. Along with all these goals, the company must also reduce its heavy debt; A debt whose interest cost alone will exceed 6 billion dollars annually.

So far, the biggest winners from the Paramount/Warner Bros. merger have been shareholders in Warner Bros. Discovery. David Zaslav, the former CEO of this company, is also among the people who benefited significantly from this deal. He cashed out his stock and stock options, netting a total of $606.1 million before taxes.

At the same time, despite the sharp drop in the stock value, some market participants still consider Sky Dance as an attractive option for investment. Andrew Barry, deputy editor of Barron's magazine, wrote in his new article that the recent drop in stock prices may have created an opportunity to buy; Because the number of shares of the company has not changed much after the issuance of warrants, and the business outlook of Skydance has not undergone a fundamental change.

Ultimately, the future of this company depends on the ability of its managers to fulfill financial promises, reduce heavy debts and maintain investment in content production. Although some investors see the stock's recent decline as a buying opportunity, Skydance still needs to win Wall Street's trust and show that its costly merger can pay off in the long term.