Skydance’s debt pile takes the spotlight

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0:32Good morning from the Financial Times. Today is Wednesday, October 7th, and this is your FT News Briefing. Hollywood is in its Ellison era, and tanker owners are paying their captains top dollar to go through the Strait of Hormuz. Plus, the fate of one of India's biggest conglomerates is in the hands of one man. I'm Mark Filippino, and here's the news you need to start your day.

1:07There is a new Hollywood colossus in town, and its CEO has a bit of an uphill battle ahead of him. Paramount Skydance closed its acquisition of Warner Brothers Discovery yesterday. Now the company is just called Skydance. Chief Executive David Ellison will have to figure out how to get a bunch of different media to work together. and he has to do it in a really tricky financial spot. The company is under a huge pile of debt. I'm joined now by the FT's Eric Platt, who's covering this to learn more. Hi, Eric. Hey, Mark. So give me a sense of what this new company looks like. What's Ellison working with here and what does he need to do?

1:42So this is really the dawn of the Ellison era in Hollywood and think of this as really a new dynasty in U.S. entertainment and news and politics, right? David Ellison through Skydance now controls the Paramount Pictures and Warner Brothers, as well as major streaming cable assets like HBO and HBO Max, CBS, CNN, Paramount Plus. To gain all this influence, Ellison has relied on huge quantums of debt at a time when interest rates for both companies and governments has risen to multi-year highs. And so laboring under this debt, Ellison needs to find a way to cut about $6 billion in costs and help grow the company over the next few years to meet targets that he's promised lenders, as well as credit rating agencies.

2:27Yeah. So Eric, tell me a little bit more about this debt situation. How big of a deal is it? Yeah. When you think about the normal investment grade blue chip company, their leverage is normally two to three times. And, you know, leverage is a measure of how much debt do they have compared to how much profit do they generate. For Skydance, after this deal closes, S &P estimates it's going to be above seven times, right? That's mammoth. And that will impact the company in so many ways, right? Skydance, both Paramount and Warner are going to be bidding on, you know, top films, and they're going to be producing television shows that cost hundreds of millions of dollars.

3:03And this debt load may constrain what they're able to do or influence what gets greenlit on the studio lots as Alison tries to, you know, thread the needle between cutting the debt burden while also producing really top entertainment options that keep attracting your subscribers. Eric, what's at stake for Hollywood as a whole under this new era of Ellison? Hollywood has been struggling since the streaming boom and bust, right? You can sense there's a bit of hope now that the deal is done that like, you know, Paramount's committed to producing and distributing at least 30 movies a year for the next five years.

3:39But I can't underline enough. There is a fear that permeates that when you lose a massive distributor of entertainment or it gets consolidated, a bit like when Disney bought Fox, that ultimately the combined company produces less and distributes less. And when you take that a step further, the risk is if Paramount and Warner are producing less or creating less content in Hollywood, it means set designers and makeup artists and actors and caterers aren't getting paid. And it has a sort of pernicious cycle here in California and on the economy more broadly on the West Coast. Eric Platt is the FT's Los Angeles Bureau Chief.

4:19Thanks so much, Eric. Thanks so much for having me.

4:27What would I have to pay you to pilot a ship through the most dangerous waterway in the world? Well, captains on boats traveling through the Strait of Hormuz are being paid, let's put it this way, handsomely, if they're prepared to take the journey through mine-filled waters and drone-filled skies. Here to talk with us about how the war in Iran is changing the labor market on the high seas is the FT's Alice Hancock. Hi Alice. Hey Mark. So what are you hearing about captain and crew pay? Yeah, so for captains and seafarers taking ships from the Gulf of Oman through the Strait Reformers and into the Gulf, they're getting paid rates equivalent to up to$100 ,000 a month.

5:08and captains are also getting a$50 ,000 bonus for each trip, which incentivizes them to go through. I mean, for lower ranking, what they call ratings and engineers on the ship, so that's the positions below the captain, their salaries are lower, so they have a sort of lower uptick, but it's at least four to six times their usual pay. So it's a decent salary if you're willing to take the risk. Yeah, and how much risk are we talking about here? I mean, in this last week, we're talking pretty risky. It's been, I think, one source was telling me one of the deadliest weeks they've seen for tankers going through the strait.

5:44There have been at least 14 attacks since September the 20th, and we're not even sure if all of the vessels have been reported. And that includes four vessels just since Saturday. So, I mean, going through is no small feat at all. now in addition to the very serious cost of life and this incentive pay that we're talking about there are other costs that tanker owners have to deal with too right yeah exactly so it's not just the crew costs tanker owners are also having to pay war risk insurance of between six and ten percent of what we call the value of the ship's hull so that's imagine that it's the ship with all the kind of technical equipment stripped out so the steel box but in some cases for a super tanker that could be as much as 20 million so it's not a small amount and then you've got ship fuel prices which also reached fresh highs last week and they're obviously much much higher than they were a year ago or before the conflict so that's another additional cost and you've got your port fees and all the kind of usual running costs of a ship but remember i mean these guys these ship owners are getting paid absolute record freight rates they're getting paid 1.3 million a day to take their super tankers through.

6:56So they also have enough to cover their costs. So Alice, speaking to people in the shipping industry, to crew, to unions, are we seeing a change of what it means to work on ships? I mean, what are they telling you about this danger pay? Yeah, it's a great question. I mean, some are saying that, of course, you know, crew should be paid handsomely when they're taking such huge risk to surf the world's markets. I mean, we would not be getting oil out of the Gulf if it weren't for these guys willing to go through the strait. They're like, you know, eight hour transits at night with all their electricity off to make sure they're hidden.

7:32It's a huge risk. Others are saying that ship owners are actually putting a huge amount of pressure on the crew. They're saying things like, we will take other crew if you don't come through and we will not pay the repatriation cost. So you'll just get left in the Gulf somewhere. And these are seafarers from countries such as India, such as the Philippines. As one person said to me, seafarers are losing almost from every angle because if they don't agree to go through, they might lose their job. And if they do agree to go through, they might lose their life. That's really serious stuff. That's the FT's shipping and industry correspondent, Alice Hancock.

8:04Thanks, Alice. Thanks, Paul.

8:12Manchester City is already in a ton of trouble for breaching Premier League financial rules. And the FT has learned it was under scrutiny even earlier than previously known. Last month, an independent commission found it had artificially inflated its financial position by more than£900 million between 2009 and 2018 by arranging, quote, sham commercial deals. And it turns out UK tax authorities already probed the football club in 2018. HM Revenue and Customs were looking into whether Man City used complex arrangements to underpay its taxes. That's according to people familiar with the matter. Here's how it all went down back then.

8:49Sources told the FT the investigation started after Dare Spiegel published a ton of leaked internal emails. The emails also prompted a Premier League investigation and looked into whether the club had manipulated its accounts and disguised funding from its owner as commercial revenue. Man City and HMRC declined to comment, but Man City did appeal the latest findings and denies that it inflated its financial positions.

9:18One of India's biggest and most well-known companies is in the middle of a tense boardroom showdown. And the battle for control of Tata hinges on a single vote. But it doesn't belong to either the company's founding family or its leadership. Here to talk with us about it is the FT's Krishnan Kaushik in Mumbai. Hi, Krishnan. Hi, Mark. So get us up to speed. What's happening with Tata? So Tata is one of India's largest conglomerates. And this entire year, there's been very intense boardroom fight that's going on at the top of this$265 billion group, which will decide the future of this conglomerate that makes everything from steel to weapons to running airlines now.

9:57But it has been privately held. Now there's a regulatory push to list it. And there is division on the boardroom about whether they should go for it or not. On one side is the family sign of the Tata family. His name is Noel Tata. He doesn't want the company to be listed and he wants it to remain in private hands. On the other side is N. Chandrasekharan, the chair of Tata Sons, which is the holding company of this group, who has come around to list this company now. And the crucial vote to back him and to back the listing does not belong to Noel Tata and does not belong to Chandrasekharan. It belongs to a complete outsider named Venu Srinivasan.

10:34Okay, so it really comes down to this one guy. Tell me a little bit more about him. Yeah, absolutely. His is the most crucial vote. Without him, nothing can move forward for this Group. Venusha Nivasan is a billionaire in his own right. According to Forbes, he's worth$7 billion. He owns a motorbike company called the TVS Group. He's a motorcycle enthusiast. And he was brought on the board of the Tata Group by Noel's elder half-brother, who was the long-term chair of both Tata Sons, the holding company, and the largest shareholder of this holding company, which are charitable bodies called Tata Trusts.

11:09So for the last 10 years, Venusha Nivasan has been on the board. But now is the first time when he's going against the wishes of the largest shareholder, which he represents. And that's what makes his vote so crucial. And by supporting the IPO, he's also going against the Tata family, which, you know, put him on the board in the first place. Christian, talk about the boardroom drama. What does this mean for the future of Tata? Well, that's the interesting question, right? Now, right now you have a person whose motivations are not clear to anybody about why he has taken these decisions. He's gone against the resolutions of the charitable bodies that he represents on the boards of the holding company.

11:48So what it means is unless the trust can convince him to change his vote, there's a deadlock. Right now, he has more board members on his side, which means that Tata Sons is going ahead with a potential listing. But the Tata Trust, the charitable bodies, they might go for a court case because they are claiming that he does not represent their will on the board anymore. And he's saying that it's my fiduciary duty to do what is best for this company. And so that's why he's taken these decisions. But what are the motivations? Nobody knows that. This is so interesting. And it's so much at stake because as we mentioned, Tata is this huge conglomerate and it's being forced to go public.

12:27How significant is this whole thing for India? Well, it has not happened in the past that a company of this size or a holding company of this size has been forced to go public. It opens all sorts of questions. How much intervention should the government have in running of a company? Because one more thing that's crucial over here to understand is Srinivasan is very well linked to the top political powers in New Delhi. And that's what people keep telling us, that this entire decision to force Tata Sons to list is politically backed. Now, what does the government want with that? Nobody's sure at the moment.

13:01Christian Kaushik is the FT's Mumbai correspondent. Thanks, Christian. Thank you, Mark.

13:11Brussels is thinking about ways to tax American big tech companies, and it's considering a broad levy on large corporations to do it. That's according to officials with knowledge of the discussions. The idea is this. The EU wants to raise revenues by taxing tech groups like Meta, Apple, and Alphabet without singling them out. So this new tax would cover all types of companies, not just the ones specializing in digital services. But officials said that the specifics were still being discussed. The hope is that by taking this approach, it'll avoid upsetting the Trump administration. These discussions are happening while EU countries negotiate over the bloc's shared budget.

13:48They're also facing spending constraints at home. All that has led to demands for new centralized taxes to raise revenues. The commission and a group that represents several tech companies declined to comment.

14:04You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.

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