Case

Bankruptcy and Restructuring at Marvel Entertainment Group

1. Why did Marvel file for Chapter 11? Were the problems caused by bad luck, bad strategy, or bad execution? What is the amount of debt of MEG (the operating company) and the Marvel Holding Companies (Marvel owners)?

The Chapter 11 bankruptcy provided an opportunity for all the major stakeholders to evaluate their options regarding their investment and control of Marvel. Bankruptcy alleviated Marvel’s immediate cash shortage, protected it from creditors and some litigation, and provided Marvel with a ‘fresh start.’

Bad strategy: Diversified youth Entertainment Company

Bad execution: Overpaying for acquisitions

There’s a combination of bad strategy and bad execution caused the problem. First, Perelman attempted to “expand the industry pie” and decrease marginal costs, which instead only worked to distract Marvel from producing quality product. Besides, Perelman showed a poor judgment in several acquisitions aimed at building Marvel into an entertainment empire but which only further distracted the company and paid more than he could earn from the acquisitions

At the year 1996, there are more than 70% debts at Marvel entertainment group. The public debts issued by Marvel Holding Companies are 47.2% of the old shares and 9.1% new shares by the time reorganization plan

2. Describe and evaluate the proposed restructuring plan. Will it solve the problems that caused Marvel to file for chapter 11?

The restructure plan:

Buy 410m new shares for $350m @ $0.85

Acquire remaining Toy Biz with 32% premium

Bondholders get 14.6% of shares (77.3m)

The restructure will allow Marvel to restructure current debt. Also will allow Marvel to sustain operations while they make improvements in the organizational structure and refocused. Marvel will see profits increasing with focus on movie production. However, the restructure plan may only solve part of the problem. Since marvel’s current bonds are valued largely lower,...