Marvel Case Study free essay sample

Selling their bonds straight away; 2. Voting in favor of the Perelman’s reorganization plan; 3. Voting against the Perelman’s reorganization plan and ? enforcing Carl Icahn’s initial reorganization plan from December 10, 1996; ? Chapter 7 – liquidation. As soon as Marvel’s management files a petition for relief with a bankruptcy court an automatic stay goes into effect. Marvel’s management then continues running the company and has the exclusive right to propose a reorganization plan within 120 days. This plan will be voted on by all the claimants and if at least ? f them vote in favour of the reorganisation plan, it is accepted. If the plan is not accepted within 180days, creditors can propose their own reorganization plan or choose to liquidate the company as seen in the last option mentioned above. In case of the first option being realised, public debt holders sell their bonds at then (31/1/1997) prevailing prices (Exhibit 6). Face value ($ millions) Marvel Holdings Marvel Parent Holdings Marvel III Holdings 517. We will write a custom essay sample on Marvel Case Study or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 4 251. 7 125. 0 Market Market price on value 1/31/97 ($) ($ millions) 0. 75 90. 545 0. 14 0. 139 35. 238 17. 375 Collateral shares (millions) 48. 0 20. 0 9. 3 Value per collateral share ($) 1. 886 1. 762 1. 868 Table 1. Payoffs in case of selling bonds. The value per collateral share can be calculated by dividing the market value of the share by the number of collateral shares. In this case Marvel Holding public debt holders receive $1. 886 per collateral share, Marvel Parent Holdings debt holders receive $1. 762 per share and Marvel III Holding debt holders receive $1. 868 per collateral share. In case ? f the claimants vote for the restructuring plan proposed by Perelman, there will be 427 new shared issued (in addition to the 101. 8 shares already outstanding), for which there will be a cash investment of $365mln made into the company. $326. 8mln of these $365mln will be then paid for acquisition of Toy Biz, which leaves the company with a number of shares of 511. 8mln and cash holdings of $38. 2mln ($365mnl-$326. 8mln). The price of the old shares at the time was $2; the new share price would therefore be $1. 11 (365+2*101. 8)/511. , which is less than what debt holders would receive in case of immediate sale of their bonds. In case, the claimants vote against the Perelman’s plan, they will be offered to vote for the Icahn’s plan, in which case the new share price, depending on the rights offering price (p r), would be p=(101. 8*2+350)/(101. 8+350/ pr ), where pr should be smaller than 2. In case p is more than the price the debt holder would get from the sale of the bond, they will vote for Icahn’s plan, otherwise, they will opt for selling the bonds right away. 1- The last option, which is liquidation (Chapter 7), should go into effect when all the abovementioned options have failed. According to Bear Stearns analysis, Marvel is worth more as a going concern then in case of liquidation. Based on the liquidation scenario, Exhibit 8, private debt holders, mainly banks, recover 69 cents on the dollar face value, whereas public debt holders, who hold unsecured claims, and equity holders, who according to the absolute priority rule are junior to all other creditors, get nothing. That is why, from a perspective of a public debt holder it is more profitable to vote in favour of the reorganization plan proposed by Carl Icahn (or sell the bonds, depending on p). However, secured claimants may have an incentive to vote against because in case of liquidation they recover approximately 70% of their claims and one should keep in mind that the longer the restructuring process lasts, the less valuable the enterprise and its assets become. -2-