Why Is SKYD Stock Plunging Nearly 20% Premarket Today?

(MENAFN- AsiaNet News)

• Each warrant initially allows holders to buy one share for $12 and is scheduled to expire in October 2036.
• A full cash exercise would raise about $5.65 billion, increase the share count, and potentially dilute ownership.
• The Warner Bros. Discovery acquisition left Skydance with pro forma net debt of $78.9 billion.

Shares of Skydance Corp. (SKYD) fell 17% in premarket trading on Wednesday as the stock traded ex-dividend following a distribution of warrants to eligible shareholders.

SKYD stock rose over 1% on Tuesday to $9.27 after trading flat in the previous session. 

SKYD Trades Without Warrant Entitlement

Skydance distributed 470.7 million warrants on Tuesday, giving eligible holders one warrant for each Class B share. Each warrant initially allows its holder to purchase one share for $12 and is scheduled to expire on Oct.13, 2036, subject to provisions permitting an earlier expiration.

The warrants trade separately on the New York Stock Exchange under“SKYD WS.” The distribution excluded specified holders, including Larry and David Ellison, the Ellison trust, Gerry Cardinale, a RedBird Capital fund and related parties. From Wednesday, buyers of the common stock no longer receive the warrant entitlement attached to eligible shares before the ex-dividend date.

Skydance also said that the Depository Trust Company would allocate warrants to participating brokers on Wednesday. Individual brokerage accounts would receive them as early as that day, depending on DTC and broker procedures. Existing options are also being adjusted. The Options Clearing Corporation said affected contracts would include 100 Skydance shares and 100 warrants.

SKYD Warrants Could Expand Share Count

The warrants could increase the common-share count when exercised. Full cash exercise of the 470.75 million warrants at the initial $12 price would generate about $5.65 billion in gross proceeds and result in the issuance of the shares.

The company's warrant FAQ states:“In addition, if other warrant holders exercise their warrants and new shares of Class B Common Stock are issued to them while you do not exercise your warrants, your percentage ownership of Class B Common Stock will be diluted.”

SKYD Faces A $79B Net Debt Test

Paramount Skydance completed its Warner Bros. Discovery acquisition last week, forming Skydance Corporation and moving its listing to the NYSE under SKYD.

The deal brings together Paramount and Warner Bros. studios, Paramount+ and HBO Max, CBS and CNN, and extensive cable networks. Warner Bros. Discovery shareholders received about $31.02 per share in cash. The transaction included $47 billion of new equity investment priced at $12 per share.

Skydance's merger presentation showed pro forma total debt of $86.8 billion and net debt of $78.9 billion. The firm targets at least $6 billion in annual run-rate synergies within three years and more than $10 billion in free cash flow by 2030.

“Our focus now turns to the future: building a company that empowers creatives, entertains audiences and rewards shareholders,” Chairman and CEO David Ellison said when the deal closed.

SKYD Bond Selloff Drags On New Issues

The company's financing has already unsettled the bond market. Without Skydance, newly issued investment-grade bonds would have outperformed JPMorgan Chase's broader high-grade index by about four basis points over a 10-day measurement period as of Oct.8. Including Skydance, the new issues lagged by 27 basis points, the widest gap in six and a half years, Bloomberg reported.

The report followed selling in Skydance's high-grade bonds issued late last month. JPMorgan linked the weakness to lighter-than-expected issuance last week, despite strong fund inflows and easing interest-rate volatility. The bank also noted that high-grade credit spreads in April 2020 were 2.7 times wider than current levels, making the recent underperformance particularly striking.“Last week's underperformance is far worse by comparison,” JPMorgan Chase said.

SKYD Retail Traders Talk Warrants And Debt

On Stocktwits, SKYD sentiment slipped to 'bearish' from 'bullish' levels a day ago amid 'normal' message volumes.

SKYD sentiment and message volume as of October 14 | Source: Stocktwits

One user said,“the decline in stock price = value of the Warrants. Zero sum.” Another user said,“Warrants have been issued for Schwab.”

View this Stocktwits post

A separate user said,“Hard pass until the leverage story proves out.”

SKYD stock has declined 30% year-to-date.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

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