Several factors led to the financial distress of Marvel. The main problem due to which the company is facing bankruptcy is the issuance of excessive debt. Moreover, the company collateralized this debt against its shares. The debt taken by the company was secured by 77.3 million shares almost 76% of the total number of outstanding shares. The details of these collateralized shares are provided in exhibit 6 of the case study. These debts were issued by separate holding companies of Marvel and carried high interest. As the companies profitability declined, it became increasingly difficult to finance the debt. The root cause of the downfall of marvel, therefore, lies in the reasons behind the decline in profitability and issuance of high amount debt.
Asset Beta, Debt to Value, Tax Rate, Levered Beta, Risk-free Rate, Levered Beta, Market Risk Premium, Levered Return on Equity,
Net Income, Net Working Capital, Capital Expenditures, Net Debt, Free Cash Flow to Equity, Total Assets, Debt to Value Ratio
1. Why is Marvel in financial distress? Bad luck? Bad strategy? Bad implementation? When possible, back your claims with numbers.
2. Why did Marvel file for Chapter 11 rather than restructure out-of-court?
3. What do different stakeholders of Marvel get under liquidation? What if the firm just continues to operate without restructuring?
4. Evaluate the (new) restructuring plan. Assuming that the plan is approved, will it solve the problems tat caused Marvel to be in financial distress? If yes, how? If not, why not?
5. What is your assessment of the pro forma financial projections and liquidation assumptions? What are the different parties incentives to bias the valuation and in what direction?
6. Does the order in which the holding company and subsidiary go bankrupt have any influence n the expected returns for each stakeholder group?
7. Why did the price of Marvel’s zero coupon bonds drop on November 12th, 1996? Comment briefly.
8. What is Icahn’s strategy? Should Icahn vote for the restructuring plan? Why or hay not?