Skydance‘s $8 billion deal to merge with Paramount Global has been characterized in some corners of the industry as a rescue mission. But one Wall Street media veteran thinks it’s premature to say the worst is behind the company.“Secular trends” like cord-cutting and declining TV ratings are “not going to change just because they’re being bought by Skydance,” said Naveen Sarma, managing director at S&P Global Ratings and sector lead for the firm’s U.S. media and telecom group. “Maybe Skydance will have a strategy that addresses some of that, but over the next, call it, year or so, year and a half, we’re going to see a company that’s going to go through a lot of upheaval because of the transaction.”Sarma spoke at the UBS Media and Communications Conference on the event’s annual panel scrutinizing the credit outlook for media companies. Credit is distinct from a company’s overall financial condition and operating strength, but thriving with a poor rating from S&P or Moody’s is difficult because of how crucial it is for companies to fund their ambitions with low-interest corporate debt. Last March, S&P lowered Paramount’s credit rating to junk status, citing “downside ratings pressure” on its linear TV business.The winding path toward the Skydance deal began around the time of the UBS conference a year ago, when Sarma voiced concerns about Paramount’s credit uncertainty and looming obligations. Within days of his comments, reports emerged of a meeting between then-CEO Bob Bakish and Warner Bros. Discovery chief David Zaslav as well as word of initial discussions with Skydance CEO David Ellison.After the close of the merger, which is projected to come during the first half of 2025, Sarma went on, “The secular trends could accelerate. They may not be able to address it. That’s certainly a negative from a credit standpoint. Longer-term, I think the jury’s still out. We’ll have to see how the deal closes, what the strategy looks like.”While the merger partners have offered “a little bit of disclosure” about plans for their movie studio and linear TV businesses, “we certainly don’t know what their streaming strategy is,” Sarma maintained. “So, we’ll have to see how that develops and how, basically, they perform, how they’re able to implement that strategy and what kind of success do they have in this environment.”Any potential upward movement of the company’s credit rating, he added, “is certainly a couple of years down the road. Is it stable? It’s stable today, but all of those things could push our view of the credit either higher or lower.”Asked to compare and contrast Paramount’s situation with that faced by Warner Bros. Discovery, Sarma said the companies share many similarities in terms of their asset bases. Both stocks have lost significant value this year, and last August within a 24-hour span each announced multi-billion-dollar writedowns on the value of their cable networks.“The difference,” the analyst said, “is when you look at the quality of the assets, we like Warner’s assets better – bigger studio, global cable networks, and a streaming business, if you believe it, that’s going to get to $1 billion in EBITDA sometime next year.”S&P has given Warner Bros Discovery financial targets to hit by the end of 2025 and will revisit their rating at that time, Sarma noted.
© 2024 Deadline.