Skydance CEO Promises Wins Across Paramount-Warner, But Can It Cut Debt Down to 3x Leverage?

Skydance CEO Vows to Win Across Paramount-Warner Merger, But Can It Cut Debt to 3x Leverage?

Overview

Skydance CEO David Ellison says the Paramount-Warner merger leaves the company ready to win across every business line. However, the combined group starts with about $79 billion in debt and aims to cut leverage to three times. Debt runs near seven times earnings by CNBC host David Faber’s count.

Challenges Ahead

Still, the plan to cut it leans on $6 billion in synergies, meaning savings from combining the two companies’ operations. Can Paramount-Warner’s $6 Billion in Synergies Cover the Debt?

Debt Repayment Plan

Ellison spoke on CNBC’s Squawk Box this week, after Paramount closed its $110 billion takeover 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, told CNBC.

Labor and Operations

Skydance co-CEO Ynon Kreiz said the savings span technology, marketing, property and labor, with labor a minority share. Additionally, management targets those savings within three years and $10 billion in free cash flow by 2030.

Growth Potential

Kreiz cited $12 billion in pro forma EBITDA, meaning combined earnings before interest, taxes, depreciation and amortization, for next year. In contrast, Ellison put leverage at 4.3 times in an earlier CNBC interview recorded in an SEC filing. That figure rests on $18 billion in EBITDA that includes the $6 billion in savings.

Cost-Cutting or Growth Story?

Kreiz rejected the cost-cutting label and described the plan as an overhaul of how the companies work. He also pointed to mid-single-digit annual revenue growth over the next three years.

Mid-Single-Digit Growth

At Mattel, however, the company said in July 2018 it would cut 2,200 jobs, 22% of non-manufacturing staff, Fortune reported. Kreiz had become CEO that April. Faber asked Kreiz whether a similar approach is needed. Kreiz said integration work is already underway but gave no job figure.

Streaming Success

Ellison cited more than 200 million streaming subscribers and a 12% share of television watch time, second to YouTube. The repayment plan depends on revenue growth and delivered savings, while Ellison has cited cable’s decline himself. Paramount’s stock traded near multi-year lows in late September.