Spinning a web of suspense, intrigue and theatrics worthy of the most dynamic Spiderman storyline, Marvel Entertainment has reached the end of a battle over its future – for now. On June 20, company bondholders – flushed with success from a court ruling earlier that day that upheld an earlier decision giving them control of the company – elected a new board of directors to run the bankrupt and beleaguered entertainment giant. That ended a twelve month protracted court feud that pitted two financial titans whose egos, some say, deserve their own comic books – Ronald Perelman and Carl Icahn.
Famous to baby boomers worldwide as the publisher of Marvel Comics – home to Spidey, Captain America, The Incredible Hulk, and dozens of other action heroes – Marvel is undergoing a transformation every bit as eye-popping as mild-mannered scientist Bruce Banner’s transition to the fabled green-skinned Hulkster.
The comic book and trading card company is now under the control of a new chairman and the owners of $894 mn in bonds secured against approximately 80 percent of the equity in Marvel Entertainment. Icahn’s rise from the ashes at Marvel, unthinkable a few short months ago, comes at the expense of Perelman, who owned most of its stock and steered the company through good times into bankruptcy.
The financial shenanigans have helped sour the company’s stock price, which had climbed to $35 several years ago and was trading at $2.125 on June 20. And things may not pick up in a hurry. Word out of the company’s New York headquarters has Icahn pushing a reorganization plan that would force current shareholders to pay $3.25 per share to protect the current value of their stock. The rights offering, says Icahn, could raise $365 mn in debt and equity. That plan doesn’t sit well with Chase Manhattan Bank, Marvel’s primary financier and a Dr Doom-like nemesis to Icahn’s Captain America if there ever was one. Not that Chase doesn’t have a legitimate beef with Icahn: as it’s currently owed about $710 mn for its investment in Marvel.
Kapow
Still, after navigating a tortuous legal process that would do the Silver Surfer proud, Icahn has reason to crow. ‘This is a great day for Marvel Entertainment and those of us who want to help this once-great company emerge from Chapter 11 and make the most of its superb characters and still-strong franchise for the benefit of Marvel’s owners, customers and employees,’ he said. ‘It’s been a long, complex battle but now the bondholders have been vindicated.’
While Marvel’s former managers maintain that the Delaware bankruptcy court judge erred in his decision, they indicate that, in the best interests of the company, they will step aside for Icahn. ‘We are disappointed with the judge’s decision, but we will abide by the decision,’ says Marvel spokesperson Gary Fishman. ‘We do believe that the plan proposed by Perelman to restructure the company was the best and fastest way to resolve the bankruptcy case.’
Perelman, who ran Marvel since 1989 after he purchased the company for $72.5 mn ($10 mn of which was his own money), bowed out of the proceedings in March after making a tender offer to pay Marvel shareholders 15 cents on the dollar – an offer that was flatly rejected. His was a mixed run at Marvel. As CEO, his decisions to raise comic book prices from $1.50 to $2.50, slap Spiderman decals on cans of Chef Boyardee, and create hard-to-swallow storylines – Spidey’s alter ego was revealed to be a clone instead of placid news photographer and fan favorite Peter Parker – were ridiculed by traditionally loyal fans.
Trouble in the Cards
Not helping matters was Marvel’s ill-advised foray into the world of bubble-gum trading cards with the 1991 acquisition of Fleer-Skybox. It came just as kids were losing interest in the concept. Then there was an equally perilous leap into the theme restaurant cauldron, where Marvel’s fledgling restaurant operation was stymied by lackluster consumer response and the resignation of its top executive.
The shockwaves from those moves still resonate, especially after Marvel was forced to cut 115 employees – or about one-third of its payroll – late in 1996. The company’s comic book division, which several years ago was publishing more than 100 titles was down to approximately 50 titles by then.
‘Perelman was only out to increase the value of his stake in Marvel,’ declares a source close to Icahn and the bondholders. ‘He never had any intention of pouring any money back into the company.’
About 30 days after the layoffs, on December 27, Marvel filed for bankruptcy, defaulting on $894 mn in high-yield bonds. ‘It was a masterful move by Perelman,’ the source adds. ‘By the time that the bondholders could dilute Marvel, their shares were worth next to nothing.’
Seething at Perelman’s chutzpa, Icahn promised to inject $350 mn into the company and sent his lawyers into battle. Early legal skirmishes saw the bondholders gaining ground on Perelman, but the big blow was landed on February 27, when a bankruptcy court judge ruled that the bondholders could foreclose on the 80 percent of Marvel Entertainment stock that they controlled as collateral for the company’s bonds.
‘But we tried to replace the Marvel board only to have the same judge issue a stay preventing us from doing so,’ says the source in Icahn’s camp. Icahn seemingly scored again as Perelman backed off on his restructuring plan and, adopting a more conciliatory tone, offered to open his books to the bondholders who were drawing up their own rescue plan for Marvel. In the meantime, Chase Manhattan pressured the bankruptcy court judge to reject the Icahn restructuring, further squeezing the bondholders who discovered that Perelman had outflanked them. The bondholders ended up fighting the battle on two fronts, one against Perelman and one against Chase.
Lustrous Plot-Line
On May 7, Toy Biz, a games manufacturer 27 percent owned by Marvel, got into the act with an offer to merge with Marvel to save the company. Toy Biz, which makes Marvel comic action figures under a unique licensing arrangement that requires no licensing fees, originally sided with Perelman against the bondholders but reversed its position in time for the May restructuring announcement with Icahn. A week later, without warning or explanation, Toy Biz backed out of the deal. That helped throw the case back into the lap of the US District Court of Delaware, which on May 14 granted the bondholders’ appeal enabling them to take control of the staggering comic book giant.
To add further luster to the plot-line, Marvel’s new board, which traditionally controls eight of Toy Biz’s eleven board seats, acted immediately to oust the current board of Toy Biz after the June 20 bankruptcy court decision. The May 20 Toy Biz board decision to renege on the restructuring deal with Icahn was fueled, some say, by some aggressive last-minute lobbying by Perelman toward Isaac Perlmutter, a friend and Toy Biz director. That didn’t sit well with the bondholders, who issued a statement at the time decrying the ‘sour grapes PR spin’ that the Toy Biz board had presented and accusing the board of ‘not even meeting to consider the proposal’.
Toy Biz, responding to the ouster of its board by Icahn and his cohorts, charged that under the common-stock voting rights held by Marvel as part of the Toy Biz stockholders’ agreement, the coup attempt should not be upheld. According to Toy Biz, ‘the change in control of Marvel results in the termination of the super-voting rights associated with the shares of Toy Biz class B common stock owned by Marvel.’ As a result, it said, ‘Marvel has no power to replace any members of Toy Biz’s board of directors.’
Nevertheless, five Toy Biz board members quit the same day that Icahn tried to fire them. ‘Toy Biz’s remaining directors expect to fill promptly the vacancies created by the resignations of its (five) directors,’ says a Toy Biz spokesperson. ‘It is not the intention of Toy Biz’s board of directors to elect any members of Marvel to fill those vacancies.’ Marvel’s new board refused comment on that, save for a statement indicating that ‘the new board will immediately conduct a review of Toy Biz strategy and operations.’
Making Stan Proud
On a par with a good cliff-hanger that would make Marvel founder and comic book guru Stan Lee proud (if no other episode from the sordid tale of Marvel ever would), the last volley between Toy Biz and Icahn closed the most recent chapter on Marvel Entertainment. Like Bruce Banner ruefully waking amid the rubble of the Hulk’s latest carnage, Marvel’s shareholders, employees and cadre of dwindling fans can only shake their heads and wonder what happened to one of America’s great companies. More specifically, they ask, what happens next?
‘I look at Marvel the same way that I looked at Disney in the 1980s when there was nothing to do but break the company apart,’ comments Steve Milo, president of American Entertainment, a comics retailer near Richmond, VA, whose biggest client is Marvel. ‘Whenever you have bean-counters running an entertainment company, the product is going to suffer. Now, if Icahn runs the company the way that Time-Warner runs DC Comics – hands off – Marvel could rally. After all, the intellectual weight of its comic book characters is tailor-made for the era of 21st century computing, with CD-Roms, the Internet and digital television technology. If you bring in the right people, Marvel could become another Disney.’
Given today’s corporate environment at Marvel and the carnage of the last six months, fans doubtless would be happy if Marvel grew into just another DC Comics. Or better yet, merged with it. Spidey vs Batman, anyone?
