Marvel Case Study
Case Study of Bankrupt and Restructuring at Marvel Entertainment Group
1) Why is Marvel in financial distress? Bad luck? Bad strategy? Bad implementation? When possible, back your claims with numbers.
There are several financial problems that compromise Marvel’s financial distress. Each problem can be explained by one or several reasons. • Overcollateral: The first financial problem of Marvel is that huge amount of shares are collateralized as its holding companies’ debts. These debts were secured by 77.3 million shares in total, accounting for 75.9% shares of Marvel as a whole.
Issue Company Marvel Holding Inc. Marvel Parents Holding Inc. Marvel III Holding Inc. Amount ($ Million) 517.4 251.7 125 Due 1998 1998 1998 Secured by 48.0 million Marvel shares 20.0 million Marvel shares 9.3 million Marvel shares
Table 1. The Debt Financing of Marvel and its holding companies Though huge amount of shares of Marvel were collateralized, Marvel’s holding companies cannot repay these debts from their profits. These holding companies were mainly used for providing legal and financial protection, but not generating operating profit. As a result, the repayment of these debts only counted on Marvel. Reasons of overcollateralized a. Over confidence. Perelman was over‐confident about the future of the company. Marvel’s holding companies issued three main bonds during Apr‐93 and Feb‐94, when the stock price of Marvel was quite high and when the profit of Marvel was significant and still increasing. b. Over value of IRS (internal revenue service). The primary motive of these huge issue was to acquire 20 million shares, boosting Perelman’s ownership more than 80%, which is the low bound of IRS. c. Intentional Bond Defaulting. During 1993 to 1994, bonds issued by Marvel amounted to $894 million, which would mature within 4 years. However, at the same time, the net income of Marvel was just $61.8 million, 1/12 of bond volume.
1) Why is Marvel in financial distress? Bad luck? Bad strategy? Bad implementation? When possible, back your claims with numbers.
There are several financial problems that compromise Marvel’s financial distress. Each problem can be explained by one or several reasons. • Overcollateral: The first financial problem of Marvel is that huge amount of shares are collateralized as its holding companies’ debts. These debts were secured by 77.3 million shares in total, accounting for 75.9% shares of Marvel as a whole.
Issue Company Marvel Holding Inc. Marvel Parents Holding Inc. Marvel III Holding Inc. Amount ($ Million) 517.4 251.7 125 Due 1998 1998 1998 Secured by 48.0 million Marvel shares 20.0 million Marvel shares 9.3 million Marvel shares
Table 1. The Debt Financing of Marvel and its holding companies Though huge amount of shares of Marvel were collateralized, Marvel’s holding companies cannot repay these debts from their profits. These holding companies were mainly used for providing legal and financial protection, but not generating operating profit. As a result, the repayment of these debts only counted on Marvel. Reasons of overcollateralized a. Over confidence. Perelman was over‐confident about the future of the company. Marvel’s holding companies issued three main bonds during Apr‐93 and Feb‐94, when the stock price of Marvel was quite high and when the profit of Marvel was significant and still increasing. b. Over value of IRS (internal revenue service). The primary motive of these huge issue was to acquire 20 million shares, boosting Perelman’s ownership more than 80%, which is the low bound of IRS. c. Intentional Bond Defaulting. During 1993 to 1994, bonds issued by Marvel amounted to $894 million, which would mature within 4 years. However, at the same time, the net income of Marvel was just $61.8 million, 1/12 of bond volume.