Paramount Completes Acquisition of Warner Bros. Discovery. Here’s What Comes Next for Skydance (SKYD).

Many investors initially thought the Paramount-Warner Bros. Discovery merger would struggle to get over the finish line due to antitrust concerns. But a little more than seven months after announcing the tie-up, Paramount, led by CEO and chairman David Ellison, has closed the roughly $111 billion acquisition.

The combined entity will be called Skydance Corporation (NYSE: SKYD).

The new company will be a media juggernaut, owning some of the strongest brands in streaming and television, including CBS, CNN, and HBO, as well as film studios such as Paramount Pictures and Miramax.

The new company also owns storied film and television franchises, including Harry Potter, The Lord of the Rings, Game of Thrones, and DC Comics, among others.

As part of the agreement, Skydance has committed to making at least 30 films annually with a minimum 45-day theatrical window. The company has also committed to creating independent editorial boards for news networks like CBS and CNN.

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Figuring out what to do with all the pieces

With the merger now complete, Skydance will now need to figure out what to do with all the pieces it recently acquired.

There's definitely going to be some overlap, so management will have many decisions to make about which ones to keep individually, merge, or potentially sell.

For instance, the company now owns Paramount+ and HBO Max, so one question is whether to continue operating them independently, combine them under one platform and brand, or bundle them as some other streaming companies have done.

"I don't want to comment on what is going to happen or anything like that, but I would point to the HBO Max-Disney bundle, which has been very successful," Casey Bloys, chairman and CEO of HBO and HBO Max Content, said during a recent Bloomberg event, according to Deadline. "So, could you see something like that happening? That would make a lot of sense."

Another question is what to do with the acquired cable networks.

TV is experiencing secular declines in advertising. While Skydance intends to keep the cable networks, it now must try to turn a business around in a struggling industry, or perhaps look to other strategic alternatives down the line.

Financial challenges

While getting a deal of this magnitude done was not easy, the real work now begins. Skydance has to show shareholders that this is an investable business.

The first part will be making good on its promise to achieve $6 billion in run rate cost synergies within three years. Skydance has also laid out financial targets for the period between now and 2030, including $10 billion in free cash flow, mid-single-digit annual revenue growth, and an adjusted EBITDA margin in the mid-20s.

Arguably, the biggest challenge will be paying down the $80 billion in debt the company is now saddled with. Wall Street has its doubts.

"We believe the combined company will struggle to meet its multi-year leverage commitments and will issue equity to pay down debt," Wolfe Research's Peter Supino wrote in a research note, according to Barrons.

Skydance faces many challenges, whether it's aligning its diverse content or improving its balance sheet and profitability.

It certainly won't happen overnight, but the company will be pressed to show tangible progress sooner rather than later, as investors are inherently skeptical of large, complex mergers.

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