Marvel Entertainment Group Inc. filed for Chapter 11 bankruptcy, proposing a reorganization that leaves financier Ronald Perelman in control and makes no concessions to Marvel bondholders including businessman Carl Icahn.
Perelman’s Andrews Group Inc. and some banks will inject $525 million to bail out the money-losing publisher of such comic books as “Spider Man” and “Incredible Hulk.” Marvel plans to boost revenue by producing TV shows, movies, video games and restaurants that feature its characters.
Under the plan, Andrews will pay about 85 cents each for new Marvel shares, almost one-third the current price of $2.375. The dilution will hurt bondholders because Marvel stock backs $900 million in bonds. Icahn, who owns 25 percent of the bonds, has said he would sue if Marvel filed for bankruptcy.
“The bondholders are being treated unfairly,” said Dennis Patterson, professor of commercial law at Rutgers University, Camden, N.J. “Perelman can’t just give cigars to all the bondholders and send them home.”
It isn’t the first time Perelman clashed with bondholders. In 1991, he agreed to pay a $12 million settlement to Revlon Inc. bondholders after they accused him of breaking a promise from his 1985 leveraged buyout. He had agreed to buy back debt at face value or exchange the debt for a new security.
Marvel listed consolidated assets of $1.3 billion and consolidated liabilities of about $1.2 billion in a filing in U.S. Bankruptcy Court in Wilmington, Delaware. The bankruptcy doesn’t include the company’s Panini unit in Italy or its Restaurant Ventures affiliate.
Perelman’s reorganization plan calls for his Andrews Group to pay $365 million for 427 million new shares of Marvel with cash or shares of Toy Biz Inc., a profitable toymaker that Andrews is in the process of acquiring. The move would make Toy Biz a unit of Marvel, giving Marvel a needed source of cash.
The reorganization plan would maintain Andrews’ stake at 80.8 percent of Marvel’s outstanding shares. The remaining stake held by the public will be diluted to 3.63 percent from 18.84 percent, according to the filing.
Marvel said that its banks agreed to the reorganization plan and will provide $160 million in new funds and $100 million in debtor-in-possession financing. The banks, led by Chase Manhattan Corp., loaned about $640 million to Marvel before it filed for bankruptcy.
“The recapitalization plan represents a strong vote of confidence by our principal shareholder and lender group in the fundamental strength and promise of the Marvel brand,” said Marvel Chairman Scott Sassa in a statement.
A disclosure hearing in bankruptcy court is scheduled for Jan. 28, followed by a confirmation hearing March 7.
Officials of Marvel and Andrews Group couldn’t be reached for comment.
Perelman plans to improve Marvel’s business by developing television programs and films, Marvel Mania theme restaurants, Marvel Interactive software and taking some initiatives with its Fleer/ SkyBox trading cards. Marvel has missed interest payments on its loans and last month reported its fourth quarterly loss.
“We would have preferred to recapitalize Marvel without having to seek the aid of the court, but the actions and positions taken by the bondholders prevented that approach,” said Sassa.
Negotiations with bondholders to waive certain restrictions on the bonds, which mature in early 1998, reached an impasse earlier this month. To pay off the bonds, Marvel would have had to sell assets, refinance the bonds or taken other costly actions.
Bondholders refused to agree to Marvel’s restructuring because it would dilute the value of the collateral on their bonds.
Icahn had offered to manage a rights offering for the new stock, with a twist: The new shares would give bondholders an 80 percent stake and shareholders would get the rest.
The financier pledged to guarantee and underwrite the rights offering through his High River Ltd. holding company. The plan was supported by owners of more than half of Marvel’s bonds.
Icahn said in a recent letter to Marvel that he would sue the company and Andrews Group if Marvel filed for bankruptcy or proceeded with Andrews Group’s plan to buy new stock.
A spokesman for Icahn declined comment on the financier’s plans Friday. In a statement, Icahn accused Perelman of using the bankruptcy to “wipe out its shareholders and public bondholders.”
“It is patently clear that Ron Perelman has adopted this course to realize a windfall profit for himself at the expense of those to whom he owes a fiduciary responsibility,” Icahn said.