Marvel Falls Into Clutches of Chapter 11

From Times Wire Services

Spider-Man and Captain America are a powerful duo, but even they couldn't muster enough strength to save parent Marvel Entertainment Group from the clutches of Bankruptcy Court.

The nation's largest comic book purveyor, also the No. 1 producer of trading cards, succumbed Friday and filed for Chapter 11 protection from creditors. The underlying trouble is that collectors who bought with abandon in the late 1980s and early '90s have lost their appetite for comics and cards.

Further complicating the plot, which has more twists than a Spider-Man serial, is a web of intrigue pitting Marvel owner Ronald Perelman against bondholder Carl Icahn, both renowned takeover artists.

Marvel is proposing a reorganization that leaves Perelman in control and makes no concessions to Marvel bondholders.

Perelman's Andrews Group Inc. and certain banks will spend $525 million to bail out the money-losing publisher. Marvel plans to boost revenue by producing TV shows, movies, video games and restaurants that feature its characters.

Perelman, who owns about 80.2% of Marvel, last month threatened the company's bondholders--who include Icahn--with the bankruptcy filing unless they approved the reorganization plan, which massively dilutes the public stockholders' ownership of the company.

Eight shareholder lawsuits have been filed seeking to block the plan. The suits claim that it allows Perelman to receive newly issued Marvel shares at a steep discount.

"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 Scott Sassa, Marvel chairman and chief executive.

"The failure to reach agreement with bondholders, many of whom are so-called vulture investors who recently accumulated the bonds, delayed Marvel from moving forward with its plan in a timely fashion," he said.

Under the plan, Andrews would pay about 85 cents each for new Marvel shares. Bondholders would be hurt by the dilution because Marvel stock backs $900 million in bonds.

Shares closed at $2.375 on Thursday, down 12.5 cents. Trading in Marvel stock was halted Friday on the New York Stock Exchange following the bankruptcy news.

Icahn, who through his High River Limited Partnership holds 25% of Marvel bonds, said it was "reprehensible" that Marvel filed for bankruptcy and "completely ignored a far more equitable alternative that had been presented and remains available."

"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 in a statement.

Perelman's reorganization plan calls for his Andrews Group Inc. to pay $365 million for 427 million new shares of Marvel with cash or shares of Toy Biz Inc., Marvel's profitable toy maker affiliate. The move would make Toy Biz a unit of Marvel, giving it a needed source of cash.

Shares of Toy Biz rose $1.25 to close Friday at $19.25 on the NYSE.

Marvel said that its banks agreed to provide $160 million in new funds and $100 million in debtor-in-possession financing. The banks, led by Chase Manhattan Corp., agreed to the reorganization plan. The bank group loaned about $640 million to Marvel before it filed for bankruptcy.

Perelman, through Marvel Holdings, Marvel (Parent) Holdings and Marvel III Holdings, owns about 80.2 million shares of Marvel Entertainment Group's 101 million shares of common stock.

Some analysts said Marvel became a casualty of a power play between Perelman and bondholders like Icahn. Other analysts suggested Marvel's problems evolved over time and have more to do with collectors losing interest in sports memorabilia and comic books.

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, Del.

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