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Perelman takes Marvel to bankruptcy court

Billionaire Ronald Perelman filed for Chapter 11 bankruptcy protection Friday for his Marvel Entertainment Group, cutting off debate with financier Carl Icahn about Perelman’s plans for restructuring the struggling company.

The bankruptcy filing takes control of the restructuring of Marvel out of the hands of bondholders such as Icahn, who was resisting Perelman’s plans, and gives it to the U.S. Bankruptcy Court in Delaware. It also allowed Marvel to get speedy access to $100 million in bank financing that the troubled comic-book and trading-card business desperately needs to pay salaries and bills.

But it carries risks for Perelman, by giving control of Marvel’s restructuring to the bankruptcy court. The court will review Perelman’s proposals for a $525 million refinancing of Marvel, but it also can hear from other parties who want to put forward restructuring plans, although most Wall Streeters believe Perelman is in the best position to retain control of the company.

No recourse

“Because we couldn’t come to a resolution with the bondholders … it was something we had to do to facilitate the restructuring plans,” said Scott Sassa, the former Turner Entertainment Group prexy installed last month as Marvel CEO.

Friday’s bankruptcy filing highlighted the financial crisis facing Marvel, showing $229 million in total assets compared with liabilities, mostly from secured debt, of $693.2 million. The company has been in violation of loan covenants and had been losing money, which Marvel execs expect to continue into next year. Among the largest unsecured creditors is the Disney Channel, which is owed $1.7 million.

To deal with the financial problems, Perelman proposed Nov. 12 that his private company Andrews Group acquire outstanding stock of Toy Biz Inc. for $365 million and merge it into Marvel. Toy Biz already was 26% owned by Marvel but the merger would give Marvel access to Toy Biz’s $70 million in cash flow, so it amounted to a capital injection for Marvel. Perelman’s plan also included $160 million in additional bank financing.

But the proposal upset investors who had bought $800 million in bonds issued by Perelman’s private company and secured against Perelman’s 80% stake in Marvel stock, because it wiped out much of the value of the bonds. Icahn, famous on Wall Street for his corporate raider tactics, jumped into the middle of the argument by snapping up 25% of the bonds at a huge discount, paying a total of $50 million, investment bankers estimate. In mid-December he proposed an alternative $350 million refinancing plan in which all Marvel shareholders would be asked to put in money.

Plan questioned

Icahn said Friday’s filing was “unconscionable” and “reprehensible” because it “completely ignored a far more equitable alternative that had been presented and remains available.” But bankers questioned how many investors would be prepared to put more money in and, as one noted, Perelman’s plan would have added a profitable business to Marvel rather than just reducing its debt.

“The guys who are complaining the loudest are the ones who bought at 20¢ on the dollar and are looking for a quick profit,” one source said. It’s believed Icahn bought at 22¢ on the dollar.

Other bondholders said the bankruptcy filing was clearly a tactic aimed at Icahn. “Essentially, Mr. Perelman has told Mr. Icahn, ‘You’re not going to dictate to me the terms of what I want to do,’ ” said one analyst for an investment firm who owns bonds. He said the question was how the bankruptcy filing would affect Perelman’s standing on Wall Street, where the billionaire needs to retain support to continue to raise money for his other businesses, which are led by Revlon.

Marvel emphasized that despite the bankruptcy filing, it would be paying all its bills in full. Sassa said Friday the bankruptcy filing was “structured in a way that’s business as usual,” assisted by the new bank financing. In the two months since he became CEO, Sassa has presided over the axing of 115 comics company employees, a third of its staff.

Plodding ahead

While the collapse in the core trading-card and comics markets over the past two years has shattered Marvel’s earnings, the company has been pushing forward with investments in feature-film production, interactive games and other areas. The company has several character-based films in development, including those based on the Incredible Hulk, X-Men, Fantastic Four and Blade, with the latter planning a January start through New Line Cinema with Wesley Snipes.

“We came here because we believe in the potential of those characters,” Sassa said of the new management team.

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