Estimated read time: 7 minutes
Nexa Partner Fraser McGee takes a look at the recent Paramount Skydance acquisition of Warner Bros. Discovery and how David Ellison and his team must now act to reduce $78.9bn of the newly created group’s net debt without starving the films, television programmes and streaming services that generate the imperative revenue streams.
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Paramount Skydance completed its acquisition of Warner Bros. Discovery on 6th October 2026. David Ellison and his team must now act to reduce $78.9bn of the newly created group’s net debt without starving the films, television programmes and streaming services that generate the imperative revenue streams. His ability to cut costs is limited by the provisions of the finance documents, employment commitments and court-enforceable settlement arrangements. Making the enlarged group profitable will depend on integrating the businesses within those legal limits.
Introduction
The $110bn acquisition of Warner Bros. Discovery (WBD) by Paramount Skydance (Skydance), merging two of the biggest studios in Los Angeles, comes after months of legal disputes and widespread criticism over feared cuts and consolidation could harm competition and consumers. Although the blockbuster deal may be complete, David Ellison’s hardest task is only beginning. Skydance now controls one of the world’s largest collections of film studios, television networks, and streaming services. It also carries $78.9bn of net debt and must find at least $6bn in annualised savings within three years without weakening the content that drives its revenue.
This is not simply a commercial integration exercise. Financing restrictions, employee protections, and court-enforceable settlements limit how quickly the managing executives can work to cut costs, restructure operations or dispose of the right assets. This article examines the continuing legal obligations shaping Ellison’s decisions, the tension between reducing debt and funding growth, and in particular what the deal teaches businesses about managing an acquisition after completion.
How big is the Skydance/Warner Bros merger?
Skydance’s completion announcementconfirmed that WBD became its wholly owned subsidiary on 6th October 2026. The combined company adopted the Skydance name. Former WBD shareholders received $31.01666668 in cash per share held.
The deal has sometimes been described as a $111bn acquisition, but that was not what it paid shareholders. Skydance announced an equity value of $81bn and an enterprise value of $110bn when it signed the agreement. Its post-closing SEC filingrecords about $78bn of merger consideration funded through debt and equity. Enterprise value includes the assumed debt.
Completion transferred control, removed WBD’s shares from Nasdaq and replaced its former directors and officers. However, it did not end the legal work. The merged group must now comply with obligations contained in the transaction and settlement documents.
How much debt does the new company have?
Skydance’s post-closing presentationshows $86.8bn of pro forma total debt, excluding $0.7bn of finance leases, and $78.9bn of net debt. The total includes $44.5bn of first-lien secured debt, $25.1bn of second-lien secured debt, plus $17.2bn of rolled-over unsecured debt.
Fitch Ratings downgraded the group’s long-term issuer rating to BB. S&P Global Ratingsexpected adjusted debt to EBITDA to remain around 7.6 times through 2027.
Management aims to secure at least $6bn in annualised savings within three years. It wants to reduce its net debt ratio to 3.75 times in 2028, followed by 3.0 times in 2029. Free cash flow is intended to exceed $10bn in 2030.
The same cash must service debt, combine operations and fund new content. Cuts that weaken output or damage creative relationships could result in reduced subscriptions and licensing income, making the debt harder to repay. Ellison therefore needs to find savings that remove duplication without undermining revenue.
What are Skydance M&A’s commitments regarding production and operations?
The new financing arrangements are likely to affect management decisions. Relevant Skydance and WBD subsidiaries guaranteed the notes and credit agreement at completion. Covenants and lender consent rights may restrict further borrowing, distributions, acquisitions, refinancing or asset sales.
A five-year consent decree, agreed after California and 11 other states challenged the merger, adds operating commitments. According to the California Attorney General, Skydance must invest at least $1.5bn in domestic production and contribute $47.5m to a workforce fund. The New York Attorney General confirms that the company must release 30 theatrical films in each of the first two years and 32 in each of the next three. It must negotiate separately with former Paramount and WBD basic cable channels. CNN and CBS must have an independent editorial board.
A production shortfall can trigger a $30m payment for each missing film and the sale of Skydance’s Miramax interest. Breaching the ‘Cable Negotiation Rules’ can require specified channels to be sold. These preventative measures attach real financial consequences to Skydance’s operating commitments.
The separate Writers Guild of America (WGA) settlement prevents writer layoffs at CBS News Broadcast for five years. Skydance must also pay $17.5m into the WGA’s health fund and meet its related legal fees. Some routes to rapid savings are therefore unavailable or carry material legal risk.
What are the continuing merger agreement obligations?
Continuing employees receive 12 months of protected salary and incentive opportunity, with broadly comparable benefits. Specified severance rights remain, prior service must be recognised for stated purposes, and benefit plans or collective bargaining agreements must be honoured.
Current and former WBD directors and officers retain protection for qualifying pre-completion matters. Current and former directors and officers of WBD retain a legal right to indemnification, advancement of expenses, and exculpation by the surviving entity. In addition, the merger agreement explicitly requires Skydance to maintain directors and officers liability ‘tail’ insurance for a strict six-year post-closing period (protecting them through to October 2032).
The merger agreement governs only part of the new group’s overall structure. Finance documents govern borrowing and security; the consent decree controls aspects of production and distribution; and the WGA settlement creates separate workforce restrictions. Each has different deadlines, beneficiaries and remedies. Skydance must track them together because an operational decision in one department (e.g., cutting overhead or altering streaming distributions) can trigger costly defaults or legal penalties in another.
Skydance now controls Paramount+, HBO Max, Pluto TV and Discovery+, alongside studios, television networks, news operations and sports rights. Management plans to combine streaming services and develop a shared technology platform. A larger catalogue may support subscription growth and wider licensing.
The group’s size does not automatically produce savings. The group must reconcile overlapping systems, brands, rights arrangements and distribution contracts before efficiencies appear. It must do that without breaching settlement terms or cutting investment so heavily that customers and creators leave.
Are there any lessons for M&A deal legal teams?
One of the most important elements of deal completion is the post-completion obligations register. It should record every surviving duty with its owner, deadlines, approval routes, evidence requirements, and remedies for breach.
Check proposed redundancies, contract changes, site closures, refinancing, and disposals against that register before approving anything. Reporting gives the Board time to amend a plan, seek consent or approach an enforcing authority. Integration decisions can then be tested against the governing documents.
How Nexa Law can help?
Nexa Law advises businesses buying, selling or reorganising companies in England and Wales. Its corporate lawyers can assist with transaction documents, financing, governance, commercial contracts and post-completion arrangements. Cross-border deals may also require advice from lawyers qualified in the jurisdictions.
Speak to Nexa Law’s corporate team about planning your transaction and managing the obligations that continue after completion.
Author:Fraser McGee SRA number 21332
Fraser McGee is a UK-qualified solicitor specialising in corporate finance/mergers & acquisitions, investment funds and outsourced general counsel services. He previously worked at major City of London law firms and in-house with international investment banks and hedge funds. His industry experience includes serving as General Counsel at RAB Capital plc and as CEO of an AIM-quoted natural resources company. Fraser advises businesses undergoing change, growth and complex transactions, particularly across energy, technology, natural resources and emerging markets. He has also been admitted as a solicitor of the Eastern Caribbean Supreme Court and is a certified PRINCE2 Practitioner in project management.