Restructuring at Marvel

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REV: AUGUST 13, 2007

BENJAMIN C. ESTY JASON AUERBACH

Bankruptcy and Restructuring at Marvel Entertainment Group
Not since the big retailing bankruptcies of the early 1990s has so much money been lost on Wall Street. Everyone is screaming murder.1 — Wall Street trader On January 28, 1997, one month after filing for Chapter 11 bankruptcy, Marvel Entertainment Group, Inc. (Marvel) filed its plan of reorganization with the United States Bankruptcy Court in Wilmington, Delaware. According to the plan, Ronald Perelman, Marvel’s largest shareholder, would recapitalize the company by investing $365 million in exchange for 427 million newly issued shares. Perelman would then own 80% of the reorganized company’s equity while public debtholders would receive 15% of the equity in exchange for debt with a face value of $894 million. Carl Icahn, one of the many “vulture investors” who had purchased deeply discounted Marvel bonds with the hope of profiting on the reorganization, considered Perelman’s plan an “unconscionable attempt to maintain control of Marvel at all costs” and was threatening to vote against it.2 Perelman’s spokesman responded by saying that Icahn’s comments were “… slightly disingenuous and patently ridiculous.”3 Based on the comments coming from both sides, it looked like the confirmation process might be a long and bruising one. Currently, the bankruptcy court had scheduled the confirmation hearing for March 7, 1997, at which time the interested parties would vote on the proposed reorganization plan. The question facing Carl Icahn and other debtholders was whether to accept Perelman’s plan, reject it in favor of their own plan, or sell their bonds before the confirmation hearing. Perelman, on the other

1 Linda Sandler, “Marvel Investors Find the Perils In Perelman’s Superhero Plan,” The Wall Street Journal, November 18, 1997, p. C1. The quote refers to the numerous retailing bankruptcies including Campeau Corporation (1/90), Ames (4/90), Carter Hawley Hale (2/91), Hills (1/92), and Macy’s (1/92). 2 “Bondholders File Motion to Take Control of Firm,” The Wall Street Journal, January 14, 1997, p. B4. 3 Floyd Norris, “2 Financiers Cross Swords Over Marvel,” The New York Times, December 28, 1996, p. 41.

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Professor Benjamin C. Esty and Jason Auerbach (MBA 1997) prepared this case. This case was developed from published sources and has not been approved by Marvel Entertainment Group. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 1997, 1998, 2007 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.

Purchased by Derek Koon (derek.koon@gmail.com) on September 25, 2011

298-059

Bankruptcy and Restructuring at Marvel Entertainment Group

hand, had to determine whether the debtholders were just posturing or were, in fact, serious about voting against the plan.

History of Marvel Entertainment Group
In 1939, an entrepreneur named Martin Goodman started the comic book business which today is known as Marvel Comics. He became famous for creating a number of superheroes including Captain America, who fought against the Germans during World War II. Over time, Marvel illustrators created more than 3,500 comic characters including The Fantastic Four, Daredevil, The Incredible Hulk, The X-Men, Thor, and...
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