Marvel Comics and Toy Biz
Why did the Marvel file for Chapter 11? Were the problems caused by bad luck, bad strategy or bad execution?
Marvel had six principle lines of business i.e. Sports & Entertainment Cards, Toys, Children's Activity Stickers, Publishing, Confectionery & Consumer Products and Licensing of characters. While carrying on operations in these lines of business, Marvel ignored the alternative means of entertainment which were trending e.g. video games. Moreover, interest of collectors in comic books was reduced which was not addressed by Marvel.
So it was the bad strategies of Marvel which caused it to file for Chapter 11.
a) Will the new restructuring plan solve the problems that caused the Marvel to file for Chapter 11?
The plan suggested by Perlman has three parts:
Investment of $350 million by Andrew Group
Investments made by Andrew group will relax the Cash flow position of Marvel. It will increase its net cash reserves, after acquisition of Toy Biz, by $33.5 million
Acquisition of Toy Biz
Toy Biz is engaged in business of manufacturing toys based on Marvel characters. It generates cash flows of approximately $60 million per annum which can be used to service Marvel’s debt. Moreover, profits of Toy Biz help to offset more than 100 million of net operating losses of Marvel.
Exchange of public debt
Third part is to exchange $894 million debt for equity. This will relax the burden of interest payments.
Marvel is facing problems of decreased revenue & profits and there is a risk that it may violate some bank loan covenants. Acquisition of Toy Biz will help Marvel in setting off losses.
Moreover, by converting loans to equity it will reduce debt servicing which will help to reduce risk of bankruptcy. New investment by Andrew group will help it to resolve current cash flow problems.
b) As Carl Icahn, would you vote for the proposed restructuring plan?
After announcement of proposed restructuring plan and sale of bonds by Fidelity and