US$6 billion synergy target follows US$87 billion post-deal debt

Skydance Corporation (NYSE:SKYD) has put a number on the challenge created by its Warner Bros. Discovery acquisition: at least US$6 billion in annualised synergies within three years, against post-closing gross debt of approximately US$87 billion. The company’s first substantive update since completing the deal on October 6 also carried a near-term warning, with management expecting Warner Bros. film underperformance to reduce fourth-quarter Studios profit by up to US$200 million.

Pre-acquisition Quarter Delivers US$1 Billion Adjusted EBITDA

The reported third-quarter figures cover Paramount Skydance before Warner Bros. Discovery entered the accounts. Revenue rose 5% year-on-year to US$7.025 billion, while GAAP net earnings attributable to the parent came in at US$73 million. Adjusted EBITDA, a non-GAAP measure, was US$1.0 billion, representing a 14.2% margin; operating income was US$368 million after US$187 million of restructuring and transaction-related costs.

Cash generation was considerably less imposing. Operating cash flow was US$123 million and free cash flow, also a non-GAAP measure, was US$31 million for the quarter. The company ended September with US$1.377 billion in cash and US$15.044 billion in gross debt, before the Warner Bros. Discovery transaction reshaped the capital structure.

Streaming and Studios Grow as TV Media Contracts

The strongest operating momentum came from the businesses Skydance wants to expand. Paramount+ revenue increased 21% to US$2.134 billion, supported by approximately 6% subscriber growth and roughly 14% growth in average revenue per user. The Studios segment grew 23% to US$1.5 billion, helped by secondary-market licensing and third-party production.

TV Media remained the earnings anchor but moved in the opposite direction on revenue. Sales fell 7% to US$3.0 billion, with advertising down 8% and affiliate revenue down 5% as pay-TV subscriber erosion continued. Cost savings helped the segment produce US$1.0 billion of adjusted EBITDA, a 34% margin, making it the group’s most profitable reported division even as its underlying revenue base shrank.

Debt Reduction Depends on Synergy Execution

Skydance says the combined company was funded with US$47 billion of new equity and US$57 billion of new secured debt. It plans to direct excess cash towards debt repayment, alongside reinvestment and the current dividend, while targeting a 3.0-times net leverage ratio by the end of 2029 and investment-grade credit metrics within approximately three years of closing.

That plan carries a substantial implementation bill. One-off cash costs to achieve the synergies are expected to total roughly US$4 billion across the transformation, including approximately US$1.5 billion to US$2 billion in 2027. More than 20 workstreams are underway across corporate overhead, marketing, technology, procurement and vendor management, with management also targeting more than US$10 billion in annual free cash flow by 2030.

HBO Max Bundle Planned as Subscriber Reporting Changes

The company plans to launch a Paramount+ and HBO Max bundle in early 2027, while aligning the platforms’ backend systems within a year of closing. Skydance said pro forma direct-to-consumer revenue, including Warner Bros. Discovery, grew 15% in the third quarter. It will stop providing quarterly subscriber disclosures from its fourth-quarter results, shifting attention to engagement and other key performance indicators.

The immediate test is less strategic than cinematic: management expects continued DTC growth and consistent TV trends in the fourth quarter, but says the Warner Bros. film slate has underperformed films released so far. The first consolidated results will therefore show whether the promised scale benefits are beginning to offset the costs of integration, the weaker film contribution and the interest burden created by the transaction.