S&P analyst says that Paramount Global’s near-term outlook is “not going to change just because they’re being bought by Skydance.”
Some have referred to Skydance’s $8-billion deal with Paramount Global as a rescue operation. One Wall Street veteran believes it is premature to declare that the worst of the company’s troubles are behind them.
Naveen Sarma is the sector leader for S&P Global Ratings’ U.S. Media and Telecom group and managing director of S&P Global Ratings. “Maybe Skydance has a strategy to address some of those issues, but we’re going see a company go through a great deal of turmoil because of the transaction.”
Sarma was a panelist at the UBS Media and Communications Conference, where the annual panel examined the credit outlook of media companies. Credit is separate from a company’s financial health and operational strength. However, a bad rating from S&P is problematic because companies need to use corporate debt at low interest rates to fund their ambitious plans. S&P downgraded Paramount’s rating in March last year, citing the “negative ratings pressure” that its linear TV business was experiencing.
Around the UBS conference of a year earlier, Sarma expressed his concerns over Paramount’s credit insecurity and looming obligations. Reports emerged within days of Sarma’s comments about a meeting that took place between Warner Bros. and then-CEO Bob Bakish. Discovery’s David Zaslav, as well as initial discussions with Skydance CEO David Ellison.
Sarma continued, “After the merger is completed, which should be in the first half 2025,” the secular trends may accelerate. They may not have the resources to deal with it. This is a major negative for credit. I don’t know what the verdict will be in the long-term. We’ll need to see what the strategy is, how the deal closes.
Sarma said that while the merger partners had provided “a little disclosure” regarding their plans for their linear TV and movie studio businesses, “we don’t really know what their streaming strategies are.” Sarma said, “We’ll need to wait and see how this develops, and how, in general, they perform. We’ll also have to watch how they implement their strategy, and what sort of success they have.”
He added that any potential rise in the credit rating of the company “is a few years away.” Is the credit rating stable? “It’s stable, but there are many factors that could change our opinion of credit.”
When asked to compare the situation of Paramount with that of Warner Bros. Discovery’s Sarma noted that the two companies have many similarities when it comes to their asset base. Both stocks have seen significant losses in value this year. In August, both companies announced that they had written down the value of their cable network by several billion dollars.
The analyst stated that “the difference” is when you look at quality of assets, Warner’s assets are better. A bigger studio, global cables networks, and streaming business. If you believe it, this will reach $1 billion in EBITDA some time next year.
Sarma stated that S&P had given WBD financial goals to meet by 2025, and they will review their rating then.
