Marvel Case

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MARVEL ENTERTAINMENT GROUP
Bankruptcy and restructuring

Introduction
Marvel entertainment group was started by Martin Goodman in 1939. It originally was a comic book business, known as Marvel Comics now. We have no way to forget the images of X-men, Spider-Man, and Thor. Marvel Entertainment Group has had a glorious history, and a dominant position in the comic market. However, this glorious empire regretfully elapsed in the end. The historical rise and fall influences not only comic fans’ life, but most importantly to its investors and the financial market. Here we discuss in detail about the reason Marvel file for bankruptcy, the evaluation of the restructuring plan, equity worth per share under restructuring plan, its influence on the debt rising ability to other firms in the group, and why the portfolio managers choose to sell their zero coupon bonds.

Part 1 Analyzing problems: why did Marvel file for Chapter 11? Were the problems caused by bad luck, bad strategy, or bad execution? After taking a deep look into its performance of a six-year period, we reached the conclusion that the fall of this comic star is mainly caused by bad strategy it adopted, especially the one to acquire Skybox. Though the first two issuance of debt did bring along good operating results, Marvel’s core business began to falter shortly after the third issuance. The sales of three major business lines: Sports and Entertainment Cards, Children’s Activity Stickers, and Published comic books all decline significantly after 1993. The main reason for this decline can be explained by the fact that child entertainment is becoming more diversified, with alternatives appearing such as video games. Besides that, collectors’ declining willingness to invest in comic books drive the sales down dramatically. However, these reasons have little things to do with luck: because a successful and experienced entertainment company like Marvel should have the ability to notice this kind of demand change. What is more, sufficient market research should also be done when deciding long-term business strategies. But the creator of Spider man really disappointed us by heading for a totally wrong direction at the turning point of this industry. To be qualified as a bad strategy adopter, Marvel decided to acquire Skybox in 1995. At that time, Marvel has a leverage ratio as high as 52%, which made it hard to pay back the huge debt when revenues are declining. Moreover, the declining demand for entertainment cards will make this expansion unlikely to boost its revenues. We can see more clearly from its operating and financing ratios that this acquisition resulted in worse performance of the whole Marvel group.

Marvel’s operating and leverage ratios

1991 Operating Ratios Sales Cost of Sales Cost of Sales/Sales SG&A SG&A/Sales Net Income Net Income/Sales Leverage Ratios Total Debt Shares Outstanding Share Price Market Value of Equity Debt/D+E EBITDA EBITDA/Sales Interest Expenses EBITDA/Interest $115.10 58.2 50.57% 21.4 18.59% 16.1 13.99%

1992 $223.80 112.6 50.31% 43.4 19.39% 32.6 14.57% 355.3 98.6 12 1183.2 23.09% 67.8 30.29% 6.5 10.43

1993 $415.20 215.3 51.86% 85.3 20.54% 56 13.49% 324.7 102.6 26 2667.6 10.85% 114.6 27.60% 14.6 7.85

1994 $514.80 275.3 53.48% 119.7 23.25% 61.8 12.00% 585.7 103.7 16 1659.2 26.09% 119.8 23.27% 16.5 7.26

1995 $829.30 538.3 64.91% 231.3 27.89% -48.4 -5.83% 934.8 101.3 12 1215.6 43.47% 34.7 4.18% 43.2 0.80

1996 $581.20 372.4 64.07% 168 28.90% -27.9 -4.80% 977 101.8 4 407.2 70.58% 40.8 7.02% 42.7 0.96

97.7 5 488.5 35.5 30.84% 3.5 10.14

As we can see from the number facts above, both operating and leverage ratios show that bad performance of the company became even worse after the acquisition. On one hand, during this six-year period, Marvel’s operating ratios decreased greatly: Net Income/ Sales dropped from 13.99% of 1991 to -4.80% of 1996. Besides, the cost of Sales/Sales rose significantly from 50.57% to...
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