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APPENDIX
E. Huynink D. Ligtenberg
Valuation & Value Based Management
Bankruptcy and Restructuring at Marvel Entertainment Group
Case Study
Diederik Ligtenberg October, 2008
Case Study: Bankruptcy and Restructuring at Marvel Entertainment groupD. Ligtenberg Case Study: Bankruptcy and Restructuring at Marvel Entertainment group
Question 1
Why did Marvel file for bankruptcy (Chapter 11)? Were the problems caused by bad luck, bad strategy or bad execution? Although the way Perelman ran Marvel Entertainment Group looked initially brilliant, Marvel had to file for bankruptcy in the end. Was this a matter of bad luck, bad strategy or bad execution? As the demand for comic books strengthened among the collectors, the decision to increase the number monthly titles and their price, caused the opposite of a high growth opportunity. The decision to buy two companies, Fleer and SkyBox, in a ‘collector’ segment, caused a high exposure instead of a healthy diversification as both ‘collector’ businesses began to fade as a result of the less profitable and attractive collecting of comics and trading cards. That is why bad strategy is the main reason for the problems and the eventual filing for Chapter 11. The perception of both businesses as ‘entertainment’, instead of ‘collectors’ made it harder to recognise the influence of a change in strategy which, for example, made the core readers of comics turn away. Especially the acquisition of SkyBox, for a 25% premium, in a declining market segment strengthened the negative effects for Marvel. However, another important factor comes across when looking at these developments. Bad execution, in the form of bad financing, can be seen as another major determinant of the problems. Looking at the debt ratios (table 1 below) in 1995 a significant increase is noticed. Because of the financing of SkyBox, Marvel added $ 190 mn of additional debt. This additional debt forced a major increase in the debt ratio, and as a result
E. Huynink D. Ligtenberg
Valuation & Value Based Management
Bankruptcy and Restructuring at Marvel Entertainment Group
Case Study
Diederik Ligtenberg October, 2008
Case Study: Bankruptcy and Restructuring at Marvel Entertainment groupD. Ligtenberg Case Study: Bankruptcy and Restructuring at Marvel Entertainment group
Question 1
Why did Marvel file for bankruptcy (Chapter 11)? Were the problems caused by bad luck, bad strategy or bad execution? Although the way Perelman ran Marvel Entertainment Group looked initially brilliant, Marvel had to file for bankruptcy in the end. Was this a matter of bad luck, bad strategy or bad execution? As the demand for comic books strengthened among the collectors, the decision to increase the number monthly titles and their price, caused the opposite of a high growth opportunity. The decision to buy two companies, Fleer and SkyBox, in a ‘collector’ segment, caused a high exposure instead of a healthy diversification as both ‘collector’ businesses began to fade as a result of the less profitable and attractive collecting of comics and trading cards. That is why bad strategy is the main reason for the problems and the eventual filing for Chapter 11. The perception of both businesses as ‘entertainment’, instead of ‘collectors’ made it harder to recognise the influence of a change in strategy which, for example, made the core readers of comics turn away. Especially the acquisition of SkyBox, for a 25% premium, in a declining market segment strengthened the negative effects for Marvel. However, another important factor comes across when looking at these developments. Bad execution, in the form of bad financing, can be seen as another major determinant of the problems. Looking at the debt ratios (table 1 below) in 1995 a significant increase is noticed. Because of the financing of SkyBox, Marvel added $ 190 mn of additional debt. This additional debt forced a major increase in the debt ratio, and as a result