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Toy Biz to control Marvel
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June 29, 1998: 7:24 p.m. ET
Toy maker, creditors to have 10 out of 11 board seats after reorganization
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NEW YORK (CNNfn) - Marvel Entertainment Group Inc.'s former directors will no longer have any board seats following the comic book giant's emergence from Chapter 11 proceedings, CNNfn has learned.
The proposal, if confirmed by U.S. District Judge Roderick McKelvie this week, represents a stunning loss for billionaire investor Carl Icahn -- who gained control of Marvel's board in June 1997 but lost control to a court-appointed trustee last December.
Under a plan of reorganization and related agreements to settle all financial claims of the 16-month Chapter 11 proceedings, the bankrupt company will merge with Toy Biz Inc. -- the exclusive maker of Marvel toys that was 27-percent owned by the nation's largest comic book publisher.
But following the merger, Toy Biz will have five designated board seats while bank creditors also will have five members, lawyers familiar with the case told CNNfn.
The 11th and remaining board seat is designated to Mark Dickstein, the fund manager of New York-based money management firm Dickstein Partners, which has invested in Marvel, those lawyers explained.
It is uncertain if Toy Biz's chief executive, Joseph Ahearn, will oust his Marvel counterpart, Joseph Calamari, who was appointed by Icahn in June 1997.
Icahn gained control of Marvel's board last summer from rival financier Ronald Perelman by purchasing bonds that were backed by the company's stock.
After installing his own board, Icahn tried to negotiate various plans of reorganization with Marvel's creditors. But each plan collapsed after failing to win creditors' approval. Icahn subsequently sued Toy Biz, alleging that it conducted an elaborate scheme to interfere with Marvel's plans.
Part of the reason Icahn couldn't gain full control of Marvel's operations was the comic book company's relationship with Toy Biz.
Although Marvel owned 27 percent of Toy Biz's stock, the shares carried super-voting rights equivalent to 78 percent. The voting rights were awarded in exchange for the valuable exclusive license to manufacture toys based on Marvel's stable of characters.
But Toy Biz argued that the super-voting rights were void after control of the Marvel's stock shifted from Perelman to Icahn.
By December 1997, the Marvel case was transferred out of federal bankruptcy court in Delaware to U.S. District Court. Judge McKelvie felt the future direction of Marvel would be best determined by a trustee.
Under the proposed reorganization plan, Marvel's creditors, led by Chase Manhattan Bank, will be given at least $280 million in cash from Toy Biz, according to a copy of the plan obtained by CNNfn with the help of a Delaware document retrieval company, Parcels Inc.
Toy Biz plans to raise the cash through an offer of high-yield debt securities. In addition, bank creditors will receive a portion of the claims in equity in the new company.
Meanwhile, current stockholders and unsecured creditors will receive three series of warrants to purchase new stock.
The new stock is expected to trade for about $10 a share. Four million warrants would be exercisable at $12 a share for six months; three million warrants for convertible preferred stock would be exercisable at $10.65 a share for six months; and five million warrants would be exercisable at $18.50 a share for four years.
For Icahn to prevail now, he must either propose a competing plan that satisfies the court's guidelines or find legal grounds to oppose the confirmation hearings, scheduled for Tuesday and Wednesday.
-- by staff writer Robert Liu
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