Andrew Bary
One of the underappreciated aspects of Paramount Skydance's revised plan to raise equity for its $81 billion equity purchase of Warner Bros. Discovery is the warrants that Paramount's public shareholders will receive.
Those warrants haven't gotten much attention, but they will provide value to Paramount holders, who saw the stock price recently hit its lowest level since Skydance took control of the media company last summer. The new warrants are slated to trade on the Nasdaq, offering liquidity to Paramount investors.
Calculating that warrant value isn't possible now. It depends on where the Paramount stock trades around the time the Warner deal closes. Paramount has targeted a third-quarter closing date, assuming regulatory approval.
Warrants are long-term call options that give holders the right to buy a stock at a set price for a fixed term. Paramount investors will get one warrant for every Paramount share that they own.
Paramount is raising $49 billion of debt and $47 billion of equity to fund the Warner deal which totals $110 billion including debt.
Paramount initially set terms for the equity raise and the warrants when it formally announced t he Warner merger in late February after outbidding Netflix. The new terms were reveal ed in a filing earlier this week.
Investors reacted favorably to the news as Paramount shares have gained 12% this week to $10.62 after hitting a new 52-week low of under $9 in late March. The stock traded as high as $20 in September.
Paramount's weak stock price reflects declining media valuations and concerns about the amount of debt that the company will carry after the Warner deal. Industry fundamentals are tough due to cord-cutting and advertising challenges.
The new terms of the warrants are more favorable than the old ones, and are designed to compensate Paramount's public shareholders for the greater dilution from the revised terms of the $47 billion equity raise.
Under the old terms, current Paramount holders would have been able to participate in a rights offering at $16.02 a share -- the same price as the equity raise.
But with Paramount shares under pressure since the deal, falling to under $10 recently from a postdeal high of $14, the equity raise terms has been recut. The offering price could be as low as $12 a share or as high as the old price of $16.02. Wall Street now assumes a price of close to $12 a share given the current Paramount share price.
The price of the equity raise and the warrant exercise will be the same -- based on a 20-day average of Paramount's stock price set three business days before the closing of the Warner transaction.
If the equity offering and warrant exercise price are set at $12 a share, each warrant could be worth about $2, according to one Wall Street estimate. That reflects a long, 10-year term until expiration for the warrants, a favorable feature.
That means that the current price of Paramount stock may already reflect expectations of the warrant value -- assuming the deal passes regulatory hurdles and gets completed.
Paramount stock has rallied since the recut terms were set earlier this week, despite the prospect of greater equity dilution. That may be because investors feared even more dilution, and the warrants effectively added value to Paramount's stock price.
In the equity raise, Paramount might issue 3.9 billion shares at a price of $12 a share, more than the roughly 2.9 billion shares at $16.02. Those are big numbers relative to Paramount's current share count of about 1.1 billion. Paramount investors would prefer less dilution.
"PSKY rallied because the deal equity will be sold at a price well above yesterday's close. PSKY has recently priced in a more dilutive scenario where equity was sold closer to market," wrote Wolfe Research analyst Peter Supino in a note Tuesday.
The new terms of equity raise likely will enable Paramount to bring in Middle Eastern investors to the deal that will account for about half of the total financing, according to The Wall Street Journal. The buyers will include an Abu Dhabi sovereign-wealth fund and an investment vehicle of the Qatar Investment Authority.
The old equity issuance price of $16.02 -- with Paramount stock trading at around $10 -- likely would have made it difficult for the Ellison family and RedBird Capital Partners, which are backstopping the equity raise, to bring in outside investors.
The Ellison family controls Paramount, and RedBird Capital is the family's equity partner.
The public float in Paramount -- which equates to the number of warrants that will be issued -- appears to be about 470 million shares. This excludes stock held by the Ellisons and Redbird. The public-float figure isn't easy to determine based on the company's current disclosure. The Middle Eastern investors won't be entitled to receive the warrants.
Write to Andrew Bary at andrew.bary@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 10, 2026 17:55 ET (21:55 GMT)
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