Restructuring at Marvel

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9-298-059 REV: AUGUST 13, 2007 BENJAMIN C. ESTY JASON AUERBACH Bankruptcy and Restructuring at Marvel Entertainment Group Not since the big retailing bankruptcies of the early 1990s has so much money been lost on Wall Street. Everyone is screaming murder.1 — Wall Street trader On January 28, 1997, one month after filing for Chapter 11 bankruptcy, Marvel Entertainment Group, Inc. (Marvel) filed its plan of reorganization with the United States Bankruptcy Court in Wilmington, Delaware. According to the plan, Ronald Perelman, Marvel’s largest shareholder, would recapitalize the company by investing $365 million in exchange for 427 million newly issued shares. Perelman would then own 80% of the reorganized company’s equity while public…show more content…
Through his MacAndrews & Forbes holding company and several subsidiary holding companies, Perelman owned a wide range of businesses including Revlon (an international cosmetics company), Coleman (an outdoor recreation equipment company), First Nationwide Bank (a California-based savings and loan association), Consolidated Cigar (a cigar company), and the Andrews Group (an entertainment and publishing holding company) (see Exhibit 1). Although this holding company structure was complex, it provided Perelman with both legal and financial protection. From a legal perspective, limited liability at the subsidiary level protected the holding companies from financial liability in default situations. From a financial perspective, consolidation allowed the holding companies to share net operating losses across firms because they typically owned at least 80% of the subsidiaries, the minimum level required by the Internal Revenue Service (IRS). According to a tax analyst at Lehman Brothers, Perelman “… knows how to exploit net operating losses better than anyone.”4 Another analyst commented: [In 1996, his companies] … generated more than $600 million in profits, yet a careful reading of their financial statements suggests they paid little or nothing in taxes to the U.S. government. Through skillful use of holding companies and tax laws, Perelman’s people have become expert at minimizing

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