Story
Paramount Stock Sinks 8% as Arete Cites Debt Risk in Warner Bros. Merger
Paramount shares plunged 8% on Thursday after Arete Research downgraded the media company to 'Sell' from 'Neutral,' citing significant financial risks associated with its planned merger with Warner Bros. Discovery.
Debt Concerns Drive Downgrade
The research firm cut its price target on Paramount stock to $2, a new low on Wall Street, from a previous level. The stock had closed at $9.75 on Wednesday.
In a note to clients, Arete analyst Pierre-Marie d’Ornano highlighted the substantial debt the combined entity would carry. The analyst projects the new company would hold $86 billion in gross debt, resulting in a leverage ratio of six times.
"Media mega-mergers are tough," d’Ornano wrote, questioning whether management has the "experience to run a highly levered balance sheet, which typically requires a different mindset."
AdChallenging Media Landscape
Arete pointed to a difficult track record for large-scale media mergers, which often miss financial estimates. The note identified persistent headwinds that could impact the new company, including:
- Ongoing declines in linear television
- Lofty expectations for streaming growth
- Difficult-to-manage capital structures
The analyst added that this proposed deal would face even greater challenges than its predecessors, including more expensive debt and more restrictive maintenance covenants.