Our Bid for Marvel Was Never Placed

My previous two columns have focused on the story of my short-lived involvement with a group of investors seeking to purchase Marvel Comics in January, 1998. As I related last time, my role in examining the Marvel documents was to analyze the licensing division with an eye as to how much potential revenue we could anticipate from this area. In the end, I had to tell my fellow investors that there really wasn't a whole lot of licensing potential left. Either the rights were hopelessly entangled due to bungling on the part of Marvel's legal staff, or that most of the decent licensing properties had already been sold for many years forward, in exchange for upfront cash payments in previous years.

The one area that held some potential was the possibility of somehow breaking the ToyBiz royalty-free licensing agreement. That license not only gave ToyBiz the rights to produce any and all Marvel toys in perpetuity, but also granted them a zero royalties rate! It seemed quite plausible to me that the bankruptcy court had the discretion to void such an encumbering agreement. That, in fact, was exactly what investor/raider Carl Icahn was seeking in his reorganization plan for Marvel. He was so sure he could have the toy contract terminated that he bet upwards of $200 million of his money, and that of closely allied investors, by purchasing Marvel bonds at distress prices.

It was exactly the prospect of losing their sweetheart agreement which made ToyBiz owners Isaac Perlmutter and Avi Arad passionately committed to purchasing Marvel. ToyBiz was almost completely dependent on its Marvel license for its survival, so there was no way they could give up on this deal. That is why Perlmutter arranged his own financing group, and ultimately bid over $400 million for Marvel.

Returning to our investment group, while I was reading the licensing agreements, the bankers whom I accompanied to the Marvel bankruptcy trustee's office went over the financials. We were originally going to work through the night to establish a criteria under which we could craft a bid for the company, or some part of the company. We stopped for lunch at 1 PM, however, and it quickly became apparent from our conversations that no one in our group thought Marvel was worth anything near what Icahn and Perlmutter were bidding. There was some very strong potential in the company, but with all the current financial and legal messes, it would take years before the income streams could be restored to cover even the $20 million per year in interest that a $200 million bid would entail. For Icahn and Perlmutter to be talking numbers over $400 million, was simply irrational except within the context of their own fears. Icahn was terrified he would lose the $200 million he invested, and Perlmutter feared losing ToyBiz.

In the end, they both lost. Perlmutter won the basic battle, gaining control of Marvel, and leaving Icahn with chump change, and some worthless warrants. Perlmutter's victory was short-lived, however, as the drawn-out legal wrangling over Marvel in the bankruptcy court left Marvel's brand image so tarnished that the toys that had seemed so important, suddenly stopped selling. ToyBiz, in fact, has been a debilitating drain on Marvel's resources during the past couple of years. Perlmutter ended up with Marvel, but with a huge amount of debt, and very weak income streams.

To return to my original contention in this entire matter, all this damage to the premiere comics company in America came about because of Ronald O. Perelman. His takeover of Marvel first destroyed the consumer base through relentless price increases and excessive expansion in titles, and then loaded the company up with so much debt that it will be many years before Marvel recovers its financial health. The losers in this affair turned out to be everyone in the entire process, except Ronald O. Perelman. Fans lost, creators lost, retailers lost, distributors lost, even competing publishers lost. We will be paying for Ronald O. Perelman's sins for decades to come.

In the end, our bid for Marvel was never placed. After lunch we packed our briefcases, and headed for the train back to Manhattan. We'd all invested time and money into a process that could never succeed due to the desperation of those we were competing against. We all learned a lot from the experience, however, and I'm very glad that we at least gave it a shot. For all his difficulties, Isaac Perlmutter has managed to keep Marvel alive, and for that we should all be very grateful. He's shopping Marvel around right now, and we all need to hope and pray that he finds a deep-pocketed buyer who can easily absorb Marvel's debt. Then we all have the prospect of seeing the comics industry bloom again after the destruction wrought by Ronald O. Perelman.

Please send your e-mails to chuck@milehighcomics.com, and your letters to:

Mile High Comics, Inc.
Attn: Chuck Rozanski
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Denver, CO 80221