Issue #45

[Stock Arrow]Stock analyst David Peltier, at http://www.individualinvestor.com, is talking about Marvel Enterprises when he says: "The stock is really at its lowest point in the last six months, now at only $3.75 a share." This was in September. As of October 11, it was at $2.81. And on October 11, Peltier put into print the story that had been moving through the grapevine for the past three weeks:

"At this point we would be remiss to ignore Marvel's financial situation, given the fact that the company is sitting on $250 million in debt and has lost $49 million over the last four quarters. With management's recent guidance to investors for possibly lower revenue and EBITDA (year-over-year), Marvel's losses over the next two quarters will be at least $15-20 million.

"At the end of the June quarter, Marvel had about $46 million ($1.37 per share) in cash on hand. In addition, the company has a $15 million semi-annual interest payment due in December.

"These calculations mean that the company is in danger of running out of cash some time before the end of the year."

It's also noted that Marvel shares have shed about 40% of their value in the last five weeks. Peltier suggests that this is due to the announced six-month delay in the release of the SPIDER-MAN film, which means another six months on top of the production schedule before money comes in from merchandising and the like. Evidently there was a hope "that initial Spider-Man-related sales would come as early as the current quarter." Which I don't see as realistic, unless someone assumed the movie was going to be written, shot, cut, printed and distributed within three months of the announcement of the film and production of the logo. (Well, you know, maybe. Russ Meyer could've done it.) It has also been suggested that the downturn came as investors realised that there was no flow of money from the X-MEN film into Marvel.

That movie has cleared $150 million domestically and $100 million in extraAmerican markets, and Marvel did not get any of that money. They took a raw deal in order to see the film made, probably assuming they'd get their payday when new credibility from X-MEN allowed more lucrative deals to be cut in the future - like the 5% piece they'll eventually get from Sony on SPIDER-MAN. When it comes out.

Marvel Enterprises management have apparently already repeated their special pleading from their annual report, complaining of "a deteriorating landscape in the toy industry". As we all know by now, Marvel is primarily a Toy And Stuffed Dolls company, and the toy business can have a profound negative impact on the health of Marvel in general. Peltier backs this up with: Peers such as Hasbro, Mattel and Jakks Pacific have all reported problems this year, due to an inability to find replacements for last year's top selling products (Pokemon, Star Wars, Wrestling) and chip shortages for electronic offerings."

Oh dear. No more Pokemon and no more voice toys for my daughter to bug the living shit out of me with. How sad. Never mind. In fact, this is slightly understated. A day later, Hasbro announced steep revenue shortfall, shed at least 5% of their workforce, and lost 20% off its share price.

But let's go back to the good bit.

"These calculations mean that the company is in danger of running out of cash some time before the end of the year."

Means what it says.

Marvel do apparently have a $40 million line of short-term credit available, but some reports have the company bleeding $10 million a month. Marvel might have the option of selling some assets, such as equity securities, to realise operating cash. But meet the bank, Morgan Stanley Dean Witter. They hold 11% of Marvel, and would, as reported by the fine people at http://www.comicon.com/splash (who got hold of this first), have to be involved in any further assets sales in regard to refinancing. Morgan Stanley own 2.2 million Marvel shares. Three months ago, they were worth $16 million. Today, they're worth a touch under $6.5 million.

No-one at Morgan Stanley is having a good time. They've just undergone a raft of high-profile resignations amid rumours of heavy losses that may run as high as $500 million. It's also said that Morgan Stanley has recently found itself with a shitload of loan exposures and dubious paper that may never realise any actual money. I mean, what would you do with a metric ton of Amazon.com stocks and shares?

Marvel Enterprises doesn't exist on the money it makes out of comics. It exists on a raft of junk bonds valued at $250 million, lashed together by Morgan Stanley.

Oh, and by the way: Morgan Stanley stocks just fell around twenty percent.

Now, I'm not saying Stop Reading Marvel Books, They're Going To Go Away Anyway. But it might be instructive for you to visit your local comics store and see how much display space they give to Marvel comics. Just look around and estimate a rough percentage. Forty percent of the displayed stock is Marvel, maybe? Twenty? Fifty or more is possible, if your local store doesn't like indie stuff and only wants to sell commercial superhero comics. So take a look. Guess.

And then work out whether your local store would still be in business if Marvel ran out of operating cash before the end of the year.

Think on it.

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