Why Skydance Stock Fell 28.5% Today

Shares of Skydance (NYSE:SKYD) fell hard on Wednesday morning. The movie studio and streaming service stock dropped as much as 28.5% around 11:40 a.m. ET, erasing $2.19 billion of market value at the bottom.

But the company isn't falling apart today. The catalyst for this plunge is actually quite boring: a warrant dividend that restructures Skydance's market value.

A warrant dividend reset Skydance's stock price

On Tuesday, Skydance distributed 470.7 million warrants to Class B shareholders of record as of Oct. 5, one stock warrant per share. The Ellison family, RedBird Capital, and a few other controlling holders were excluded.

Each warrant lets the holder buy one Class B share for up to 10 years, at an exercise price of $12 per share. Wednesday was the ex-dividend date for the action that distributed warrants, so new buyers of Skydance shares will no longer receive a warrant.

The warrants trade separately as Skydance (NYSE:SKYDWSWI). At $2.39 apiece, they add up to roughly $1.1 billion of market value.

What the warrants mean for Skydance shareholders

If you owned regular Skydance shares going into Wednesday, you can relax.

Your stock got lighter, but a shiny new warrant should be landing in your brokerage account to make up the difference. No action is required, and nobody lost much money. The pie just got sliced differently. It's a bit like a spin-off, except the new security is a Skydance warrant instead of a new company's stock. If anyone gave something up, it was the Ellison family, whose shares came without a warrant.

RedBird Capital, Gerry Cardinale's investment firm and a major Skydance shareholder, also sat out the warrant handout. And that $12 exercise price isn't set in stone. Skydance's board can lower it, or increase the shares each warrant buys, whenever it sees fit. The board can't simply raise the value, though.

Think of your new warrant as a 10-year lottery ticket on Skydance's comeback. With the stock trading near $6.80, it needs to climb 77% just to reach the warrant's $12 exercise price. The real worries, like $78.9 billion of pro forma net debt, were already there on Tuesday.

Boring? Absolutely. Bad news? Not really.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.