The new giant Skydance plunges 24% on the stock market

The group that owns Warner Bros. and Paramount distributed nearly 471 million warrants. An operation which causes its price to fall, while the new group already has to deal with nearly 80 billion in debt.

The merger of Paramount and Warner Bros. Discovery is starting to make its presence felt on Wall Street.

On Wednesday, Skydance shares plunged almost 24% – around $7 – after falling as much as 27% during the session.

This drop comes the day after the distribution of some 471 million warrants, or warrantsto holders of class B shares of Paramount Skydance. Concretely, each warrant initially allows its holder to purchase a share of the new entity at a price of 12 dollars. If all the warrants were exercised, the transaction could bring in approximately $5.65 billion for Skydance. But it would also increase the number of shares outstanding, thereby diluting the stake of current shareholders. It is currently unknown how many warrants have already been exercised.

Skydance shares, listed on the New York Stock Exchange since October 6 under the symbol SKYD, ended the previous session around $9.27. The New York Stock Exchange announced a technical adjustment of the reference price to take into account the distribution of warrants. But this correction is not enough to explain Wednesday’s fall. According to Skydance, the group’s market capitalization before this operation reached $46.6 billion. Taking into account the warrants, it would have been reduced to around 45.6 billion. After the stock’s tumble, it fell to around $35.6 billion…

The fall in price, however, does not only reflect the mechanical consequences of this distribution. Wall Street remains cautious about the new Paramount-Warner Bros. combination. Discovery. The group is expected to generate nearly $70 billion in pro forma annual revenue, but will also have to manage nearly $80 billion in net debt. In a note published Wednesday morning (via Variety), Wells Fargo analysts, led by Steven Cahall, described the distribution of the warrants as the final step in the process of closing the transaction. They also recalled that large mergers in the media sector have often struggled to achieve announced profitability targets, notably citing the mergers between CBS and Viacom, Disney and 21st Century Fox, as well as Discovery and WarnerMedia.