Skydance Faces Uphill Battle to Manage Debt After Paramount Deal
Analysts question the financial viability of the $110 billion acquisition, citing significant debt burdens and challenging repayment targets.
Skydance, led by CEO David Ellison and co-CEO Ynon Kreiz, is facing intense scrutiny from Wall Street over the financial feasibility of its $110 billion acquisition of Paramount. Despite securing the deal, the company must now navigate a complex financial landscape marked by substantial debt and demanding repayment obligations.
To fund the acquisition, Skydance raised approximately $24 billion from Middle Eastern sovereign funds, several billion from RedBird Capital, and secured contributions from the Ellison family. An additional $42.4 billion is being raised from the bond market. However, the company has committed to specific financial targets for its debt holders, with the first major milestone due in 2028. This target focuses on the ratio of debt to earnings, rather than a fixed monetary amount.
Naveen Sarma, sector lead for U.S. media and telecom at S&P Global, expressed skepticism about Skydance's ability to meet its 2028 financial targets. Sarma estimates a potential shortfall of $10 billion to $15 billion, questioning the extent to which David Ellison's father, Larry Ellison, might need to provide additional equity infusions. Larry Ellison's substantial net worth, largely tied to Oracle's stock, could be a critical factor in backstopping the company.
The closing of the merger was delayed for months due to an antitrust lawsuit filed by California Attorney General Rob Bonta and action from the WGA. These delays coincided with rising interest rates and Treasury yields, increasing borrowing costs. Estimates suggest Paramount could face up to an additional $500 million in annual expenses due to these higher borrowing costs. Sarma noted that this situation exacerbates the challenge of de-leveraging the company, meaning paying down debt.
Skydance is not projected to achieve positive cash flow until at least 2028. The company has also committed to approximately $6 billion in synergies, which typically involve cost-cutting measures like layoffs. However, David Ellison has indicated a preference for alternative cost-reduction strategies that would minimize widespread layoffs, though significant job cuts are still anticipated.
![Ynon Kreiz at the