Bankruptcy and Restructuring at Marvel Entertainment Group
Case No: N9-298-059
Posted: 16 Sep 1998
Date Written: September 10, 1997
SUBJECT AREAS: Chapter 11 bankruptcy, restructuring, valuation, incentive conflicts, insider trading, media and entertainment, vulture investing, corporate control. CASE SETTING: January 1997, USA, comic book publisher and trading card manufacturer, $800 million revenue, 1,600 employees.
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Marvel Entertainment Group is the leading comic book publisher in the country with superheros like Spider-Man, The Incredible Hulk, The X-Men, and Captain America. It is also one of the leading manufacturers of sports and entertainment trading cards under the Fleer and SkyBox brand names. In recent years, it has experienced sharp declines in both businesses causing it to file for bankruptcy in December 1996. The case is set in late January, 1997, shortly after Marvel filed its reorganization plan with the bankruptcy court and approximately one month before creditors will have to vote on the plan at the confirmation hearing.
The case pits two of the most prominent raiders of the 1980s against each other for control of the company. On one side is Ronald Perelman who controls Marvel through his MacAndrews & Forbes holding company. On the other side is Carl Icahn who controls 25% of Marvel's public debt. Icahn and the other bondholders must decide whether to accept Perelman's plan, to reject it in favor of their own plan, or to sell their bonds before the confirmation hearing. Perelman must decide whether to change the plan in response to the debtholders threats to or to wait and see what happens at the hearing.
I use the case in an advanced corporate finance class for MBA students in a module on managing decline and restructuring. It would, however, also be appropriate for doctoral students as a concrete example of a distress situation following a lecture on bankruptcy procedure and evidence - the teaching note references many academic articles on bankruptcy and restructuring. The case has four objectives: it provides an opportunity to value a Chapter 11 restructuring plan; it illustrates debtholder/equityholder incentive conflicts in a distress setting; it raises the issue of whether insider-trading" in debt instruments, specifically junior debt in a distress situation, should be illegal; and it illustrates the role played by vulture investors in Chapter 11 restructurings. In addition, the case can be used to discuss the importance of reputation in capital markets by asking whether Perelman will be able to raise new debt following this ordeal.
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