Skydance shares sink 24% as 471 million warrants begin trading separately

SKYD fell sharply on Wednesday, October 14, as about 471 million warrants began trading separately from the shares on the ex-distribution date. The stock closed at $7.06, down 23.84% by the Motley Fool's count, after dropping as much as 28.5% intraday. Measured against the NYSE-adjusted reference price of about $9.07 rather than the unadjusted prior close near $9.27, the closing decline was 22.2%, according to Fox Business.

The move is largely mechanical. According to the company's 8-K, Skydance distributed 470,746,773 warrants on October 13 to Class B holders of record on October 5, one per share, and each lets the holder buy one Class B share at $12.00 until October 13, 2036. Eligible holders keep their stock and receive a warrant, so value moved from the shares to the warrants rather than disappearing. The warrants closed at $2.20 per TheWrap, in line with the roughly $2 gap between the old and new share price. The Ellisons, Gerald Cardinale, RedBird Capital Partners Fund IV and two Paramount Global benefit plans were excluded from the distribution. If every warrant were exercised, the company would raise about $5.7 billion but shares outstanding would rise by roughly 10%.

The distribution does not change the leverage picture. The combined company, formed when Skydance closed its $110 billion acquisition of Warner Bros. Discovery on October 6, carries roughly $80 billion in net debt against an expected $11.2 billion of adjusted EBITDA; its merger presentation shows pro forma net debt of $78.9 billion. Fitch downgraded the company to BB, citing materially higher leverage, while management targets a leverage ratio of three times by 2029 and more than $6 billion of merger cost savings.

Investors may watch how the warrants trade, since they pay off only if the shares climb well above $12.00 from the $7.06 close, and whether the company delivers on its synergy and leverage targets. The company can designate earlier expiration after October 13, 2029 under specified trading-price conditions.