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. Question 2 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.
The South American country of Brazil is well-known for its biodiversity and wealth of natural resources. The Amazon River and rainforest are located in Brazil, a country with more than 800,000 square miles of coastline, and a landmass so large that its borders touch all but two of its neighboring countries (Rich, 1999). The Amazon rainforest is the world’s largest tropical rainforest, and ...
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 Putnam, price of Marvel stock and zero coupon bonds fall significantly.
Although, Carl Icahn purchased bonds at deeply discounted prices yet, after announcement of restructuring plan price of bonds further decreased. Since revised plan caused the bond prices to fall and will cause loss to Carl Icahn, he should not vote in favor of this plan. Question 5 a)Why Fidelity and Putnum sold their bonds? After meeting with chairman of Andrew group, both investors realized that after the restructuring of Marvel, market value of shares will drop.
Since bonds were secured by equity, forecasted fall in value of equity created a risk that collateral will not be sufficient to pay off debts. So both investors sold bonds in order to avoid anticipated losses. b)Why did Marvel’s zero coupon bonds drop on Nov 12, 1996? Sale of bonds by Fidelity and Putnum right before the announcement of restructuring plan gave a message to other bond holders that these two investors must be having some insider information that an unsuccessful restructuring plan will be announced. Due to this market sentiment, price of Marvel’s bonds fall.