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Paramount Skydance stock in Focus as odds of Warner Bros deal closing rise

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Paramount Skydance stock will be in the spotlight today as odds that the deal to acquire Warner Bros. Discovery will close soon. PSKY ended last week at $10.21, a few points below this month’s high of $11.23. 

Odds of Paramount Skydance and Warner Bros. Discovery merger rise

Traders on Polymarket and Kalshi are betting that the Paramount Skydance and Warner Bros. Discovery merger will close before the year ends. Odds of this happening jumped to 83% on Polymarket from last month’s low of 8.3%. 

These odds jumped after media reports of a potential settlement with states emerged. According to Bloomberg, Paramount will pay a huge fees if it fails to hit its pledge for films in California. 

The company will pay $30 million for each film that falls short of the 30-film goal. Also, continued missing of this target could lead to a forced sale of Miramax, a popular film studio that created Pulp Fiction. 

Another provision would call for the establishment of a bipartisan editorial board to monitor cable news channel CNN. 

Deal faces major headwinds

Still, the deal faces some major headwinds, including the rising opposition from some politicians, including Jamie Raskin. In his statement, he said that the David Ellison should not be allowed to own both CNN and CBS, two of the biggest cable networks in the United States. 

These developments are happening as Paramount’s cost for the deal remains elevated. For one, it will start paying Warner $7 million per day or $650 million a quarter starting from September 30. Its total accumulated fees could get to $1.3 billion by March next year. 

The most recent results showed that Paramount Skydance’s revenue rose by just 1% in the second quarter to $6.8 billion. Its operating income rose to $399 million, while its net profit was just $58 million. 

Warner Bros, on the other hand, said that its revenue plunged by 11% to $8.7 billion. Its distribution revenue rose by 1% to $4.9 billion, while its advertising and content dropped by 22% and 26%, respectively. Its profits and free cash flow metrics also tumbled. 

This performance raises concerns on whether Paramount Skydance’s $111 billion buyout will be worth it. For one, most analysts believe that the company overpaid for Warner and that generating enough synergies and growth will be hard. 

Also, the deal will result in one of the most levered companies in the US, with a combined debt of nearly $80 billion.

Paramount Skydance stock analysis

PSKY stock chart | Source: TradingView

The daily chart shows that the PSKY stock bottomed at $7.56 in August and then bounced back. It peaked at $11.13, its highest level in May and September this year. 

There are signs that the stock has formed an inverted head-and-shoulders pattern, which often leads to more upside. It has also moved briefly above the 50-day Exponential Moving Average (EMA). 

These technicals suggest that the stock may rebound in the coming days or weeks. This view will be confirmed if it moves above the crucial resistance level of $11.13. If it happens, it may jump to the key resistance level of $13.9, its highest level in February. 

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