Skydance‘s $8 billion deal to merge with Paramount International has been characterised in some corners of the business as a rescue mission. However one Wall Avenue media veteran thinks it’s untimely to say the worst is behind the corporate.
“Secular traits” like cord-cutting and declining TV rankings are “not going to alter simply because they’re being purchased by Skydance,” mentioned Naveen Sarma, managing director at S&P International Scores and sector lead for the agency’s U.S. media and telecom group. “Perhaps Skydance may have a method that addresses a few of that, however over the subsequent, name it, 12 months or so, 12 months and a half, we’re going to see an organization that’s going to undergo lots of upheaval due to the transaction.”
Sarma spoke on the UBS Media and Communications Convention on the occasion’s annual panel scrutinizing the credit score outlook for media firms. Credit score is distinct from an organization’s general monetary situation and working power, however thriving with a poor score from S&P or Moody’s is tough due to how essential it’s for firms to fund their ambitions with low-interest company debt. Final March, S&P lowered Paramount’s credit standing to junk standing, citing “draw back rankings stress” on its linear TV enterprise.
The winding path towards the Skydance deal started across the time of the UBS convention a 12 months in the past, when Sarma voiced considerations about Paramount’s credit score uncertainty and looming obligations. Inside days of his feedback, stories emerged of a gathering between then-CEO Bob Bakish and Warner Bros. Discovery chief David Zaslav in addition to phrase of preliminary discussions with Skydance CEO David Ellison.
After the shut of the merger, which is projected to return in the course of the first half of 2025, Sarma went on, “The secular traits may speed up. They might not be capable to deal with it. That’s definitely a adverse from a credit score standpoint. Longer-term, I believe the jury’s nonetheless out. We’ll need to see how the deal closes, what the technique appears like.”
Whereas the merger companions have provided “slightly little bit of disclosure” about plans for his or her film studio and linear TV companies, “we definitely don’t know what their streaming technique is,” Sarma maintained. “So, we’ll need to see how that develops and the way, mainly, they carry out, how they’re capable of implement that technique and what sort of success have they got on this atmosphere.”
Any potential upward motion of the corporate’s credit standing, he added, “is definitely a few years down the highway. Is it secure? It’s secure right now, however all of these issues may push our view of the credit score both increased or decrease.”
Requested to match and distinction Paramount’s state of affairs with that confronted by Warner Bros. Discovery, Sarma mentioned the businesses share many similarities by way of their asset bases. Each shares have misplaced important worth this 12 months, and final August inside a 24-hour span every introduced multi-billion-dollar writedowns on the worth of their cable networks.
“The distinction,” the analyst mentioned, “is once you have a look at the standard of the property, we like Warner’s property higher – larger studio, international cable networks, and a streaming enterprise, if you happen to imagine it, that’s going to get to $1 billion in EBITDA someday subsequent 12 months.”
S&P has given WBD monetary targets to hit by the tip of 2025 and can revisit their score at the moment, Sarma famous.