Skydance CEO Envisions All-Round Wins from Paramount Deal, but Can 3x Debt Target Be Met?

The Paramount-Warner merger has positioned Skydance for success across every operation, according to CEO David Ellison. However, the newly combined business carries roughly $79 billion in debt, with plans to bring leverage down to three times.

David Faber of CNBC puts the debt at close to seven times earnings. To lower this, the company is banking on $6 billion in synergies derived from integrating the two companies' operations.

Can the $6 Billion in Synergies from the Paramount-Warner Deal Cover the Debt?

This week, Ellison appeared on CNBC's Squawk Box after Paramount closed its $110 billion acquisition of Warner Bros. Discovery (WBD). The combined company is now called Skydance.

“We are positioned to win in every single vertical that we operate in.”

David Ellison, chairman and CEO of Skydance, delivered that line during an appearance on CNBC.

Ynon Kreiz, Skydance's co-CEO, said the cost reductions cover technology, marketing, property, and labor, with labor representing a minority share.

Management is aiming to realize these savings within three years, and to achieve $10 billion in free cash flow by 2030.

Kreiz also put the pro forma EBITDA at $12 billion for next year, a figure that represents earnings before interest, taxes, depreciation, and amortization.

In contrast, an earlier CNBC interview with Ellison, as filed with the SEC, showed leverage at 4.3 times. That calculation is based on $18 billion in EBITDA, which already includes the $6 billion in savings.

Faber, for his part, put annual interest costs at $6 billion, plus an $800 million dividend.

Is Skydance's Future About Growth or Cost Reduction?

Kreiz dismissed the cost-cutting description, framing it instead as a comprehensive overhaul of how the two companies operate. He also highlighted expected mid-single-digit annual revenue expansion over the next three years.

However, at Mattel, the company announced in July 2018 that it would eliminate 2,200 jobs, or 22% of non-manufacturing staff, according to Fortune. Kreiz had taken on the CEO role that April.

Faber queried whether a comparable workforce reduction might be necessary. Kreiz responded that integration efforts are already ongoing but did not provide a specific number for potential job cuts.

Ellison noted over 200 million streaming subscribers and a 12% share of television viewership, placing it second only to YouTube.

The debt repayment strategy hinges on revenue growth and achieved savings; Ellison himself has referenced the decline of cable. In late September, Paramount's stock traded at close to multi-year low levels.