One of the key steps in reinventing Marvel was a $525 million debt
financing in 2005 that was secured by Captain America, the Avengers and
others from the company's library of more than 5,000 characters.
The debt package, announced almost four years to the day before the
Disney buyout, was a creative move that gave Marvel a foothold in film
production and allowed it to more fully guide its destiny. Disney
obviously has the ability to produce a film, and clearly values what
its CEO, Robert Iger, called a "treasure trove" of characters, stories
and fans. The success underscored the value of Marvel's brand to
Hollywood.
In recent years, alongside the success of its debut production,
"Iron Man," Marvel stock has risen to historic levels amid a recession.
Whatever influence Marvel's move into production may have had on
Disney's thinking, the buyer is paying top dollar.
The 2005 financing backed a slate of films with budgets of up to
$165 million and ratings of PG-13 or less. The package was secured by
intellectual property related to characters, giving the lenders no
recourse to Marvel and its subsidiaries. The approach allowed Marvel to
produce its own films while mitigating the financial risk.
"When you license that business, you're often at the whim of the
studio and the discretion of producers and others," says one industry
source.
With its success, Marvel could remain independent. The company was not forced to seek a buyer.
In 2005, when Marvel arranged the financing, sales were $390
million, a significant dropoff from the year before. Revenues fell to
$350 million in 2006 but rose to $485 million the following year.
Marvel released "Iron Man" on May 2, 2008. The film bought in more
than $100 million during its first weekend, and ultimately sold $318
million worth of tickets in the U.S. and $600 million around the world.
Marvel's second release, "The Incredible Hulk," came in June 2008.
For 2008 as a whole, Marvel's sales topped $675 million. The studio produced $255 million in revenues, or 38% of the top line.
Even before Disney's $50 per share bid on Aug. 31, Marvel had been
on favorable ground. The target's stock closed at $38.65 on Aug. 38.
A year earlier it traded in the $33 to $34 range. In late August
2007, the stock was in the low $20s, after trading in the upper $20s
earlier in the year.
The price tag includes $30 in cash plus 0.745 Disney shares,
equaling $20 when the deal was announced. Maintaining at least 40% of
the payout in stock carries tax benefits for Marvel shareholders. To
ensure that positive tax treatment isn't jeopardized, the mix of cash
and stock will be adjusted at closing.
The balancing act could result in Marvel shareholders receiving more
or less than $50 per share from Disney. If Disney shares increase in
value, the cash payment stays at $30 and Marvel shareholders get more
than $50 per share.
But if the stock drops, Disney will adjust the composition of the
payment. The cash will decrease and the shares will increase
proportionally until the mix returns to a 60-40 cash-to-stock ratio.
Just as Marvel investors can ride Disney stock to a payout of more than
$50, they can also ride it down if the stock falters.
Disney is paying a 30% premium for Marvel. Lazard Capital Markets, a unit of investment bank Lazard,
put the deal at 12 times 2010 Ebitda, or a more modest multiple of 10
times Marvel's 2012 Ebitda. The price is significantly above the
valuations assigned to Disney and other media conglomerates, which have
suffered along with the broader market. If Iron Man and his fellow
super heroes continue to succeed on screen, and a stabilizing economy
improves Disney's market capitalization, the valuation gap will
decrease.
Principal photography for "Iron Man II," Marvel's next release,
concluded in July. Marvel will not release the film until May 7, 2010,
meaning the deal will not be immediately accretive to Disney. "Thor,"
"Captain America" and "The Avengers" are teed up for releases on July
16, 2010, May 6, 2011, and July 15, 2011, respectively, suggesting more
cash will flow to Disney. For now, Marvel's new owner will be bound by
pre-existing distribution deals.
Ultimately, Disney hopes for another franchise-rich acquisition,
much like its purchase of Pixar. Documentation of the two purchases
contains similar "policies for management" of the targets. The passages
outline general guidelines for handling creative and business issues
and note that executives of Pixar and, pending completion of its deal,
Marvel, report directly to Iger.
Disney management, meanwhile, has publicly expressed its intention to let Marvel shepherd its characters and stories.
Though "Hannah Montana" has been a hit among tween girls, the studio
could use help in what has proven to be an uncooperative market for
Disney, young boys.
"I think there is an expression, 'if it ain't broke ...' " Iger explained when announcing the purchase.
So don't expect Spider-Man in the next "Bug's Life" flick.
As Marvel Entertainment Inc. stands at the threshold of the Magic Kingdom, the comic book giant and movie studio faces the tantalizing prospect of being able to draw on the distribution and marketing clout of a global media conglomerate while maintaining control over its portfolio of heroes, villains and bystanders.
