Marvel Went Bankrupt in 1996. Disney Paid $4 Billion in 2009.

In 1991 a single comic book sold about eight million copies. It was the first issue of a new X-Men series, and it came with five different covers, so that collectors would buy all five. Many bought boxes of them, sealed them in plastic and put them away. They were sure they were holding an investment.

They were holding paper. Within five years the company that printed them was bankrupt.

A comics company borrows big

Marvel had been owned by a string of companies since its founding as Timely Publications in 1939. In January 1989 the financier Ron Perelman bought it, through his holding company MacAndrews & Forbes, for $82.5 million. Two years later he took it public on the New York Stock Exchange.

The early 1990s were a gold rush for comics. Publishers pumped out special editions, variant covers, foil and hologram covers, first issues and “collector’s items.” Speculators bought them by the case. Marvel’s sales and its share price soared.

Perelman used the boom to build an empire around the characters. Marvel bought the trading-card company Fleer in 1992 and a large stake in the toy maker Toy Biz in 1993. It bought the Italian sticker company Panini in 1994 and the card maker SkyBox in 1995. It even bought a distributor, Heroes World, so it could deliver its own comics to shops. Much of this was paid for with debt. Perelman’s holding companies issued nearly $900 million of high-yield bonds, secured on his Marvel shares.

The bust

Then the collectors worked out what they owned. A comic printed in the millions is not rare, and it will never be valuable. Speculators stopped buying. Comic shops that had stocked up for them went out of business by the hundreds, and the market fell apart. The trading-card business slumped at the same time. Marvel’s decision to distribute its own comics made things worse, throwing the rest of the industry’s distribution into chaos.

In 1995 Marvel reported its first annual loss under Perelman. On January 4, 1996, it laid off 275 employees. The debts that had paid for the expansion now had to be paid from a business that was shrinking.

Perelman proposed a rescue. He would put in $350 million for about 80% of new Marvel shares and merge the company with Toy Biz, which had steady profits. The bondholders, led by the investor Carl Icahn, rejected it. They said it would give Perelman control at a fraction of the company’s value. On December 27, 1996, the Marvel group of companies filed for Chapter 11 bankruptcy.

The fight for the characters

What followed was one of the strangest bankruptcies of the decade. Icahn had been buying Marvel’s bonds cheaply, at around a fifth of their face value. In February 1997 a judge ruled that the bondholders could take the Marvel shares that secured their bonds. In June 1997 Icahn won the right to replace Marvel’s board, Perelman included.

But Icahn could not run Marvel either. Toy Biz, the toy maker that made Marvel action figures under a royalty-free license, was controlled by two men, Isaac Perlmutter and Avi Arad. Marvel owned only 27% of Toy Biz, but those shares carried 78% of the votes, and Toy Biz argued that the special voting rights had ended when control passed to Icahn. Lawsuits flew in every direction. In December 1997 the court took the company out of Icahn’s hands and appointed a trustee.

The banks that had lent to Marvel sided with Toy Biz. On June 2, 1998, Marvel and Toy Biz merged into a new company, Marvel Enterprises. Toy Biz and the creditors took 10 of the 11 board seats. The comics company now belonged to its toy maker.

Renting out the heroes

Marvel was out of bankruptcy but it still needed money. Its fastest source was Hollywood. It licensed the film rights to its best-known characters to other studios: Spider-Man to Sony, the X-Men and the Fantastic Four to 20th Century Fox, Blade to New Line.

The films were hits. Blade in 1998, X-Men in 2000 and Spider-Man in 2002 made hundreds of millions of dollars. But Marvel had sold the rights cheaply when it was desperate, and most of the money went to the studios.

So Marvel decided to make its own films. In September 2005 it closed a seven-year, $525 million financing arranged by Merrill Lynch. The security was unusual. A Marvel subsidiary pledged the film rights to ten characters that Marvel still controlled. If the films failed, the lenders could take the characters. If they worked, Marvel would own them outright.

The ten were not famous. Spider-Man and the X-Men were already licensed elsewhere. What Marvel had left were characters like Captain America, Thor and the Avengers. Then the film rights to Iron Man came back to Marvel from New Line, and the new studio decided to start with him.

Iron Man

Iron Man opened in May 2008, starring Robert Downey Jr., an actor many in Hollywood considered too risky to cast. It took about $585 million worldwide. A scene after the credits introduced Nick Fury and hinted that the heroes would one day meet. Marvel Studios had invented a business model: a series of films that all belonged to one connected universe.

It also had profits. In 2008 Marvel earned $206 million on revenue of $676 million, the Associated Press reported.

Disney pays $4 billion

On August 31, 2009, Disney announced that it would buy Marvel and its more than 5,000 characters. Marvel shareholders would receive $30 a share in cash plus about 0.745 Disney shares, about $50 a share or $4 billion in all. Disney’s chief executive, Bob Iger, praised Perlmutter for nurturing the characters. The deal closed on December 31, 2009.

Many analysts thought Disney had paid a full price. Then came The Avengers in 2012 and a run of films that dominated the world’s box office for a decade. Avengers: Endgame took about $2.8 billion in 2019. The company that could not pay its bondholders in 1996 had become the most valuable franchise in film.

What the record shows

• A boom built on scarcity collapses when nothing is scarce. Millions of “collector’s editions” made every one of them worthless.
• Debt turns a slowdown into a crisis. Marvel’s acquisitions were survivable; the borrowing behind them was not.
• Owning the characters is the business. Marvel nearly lost them in bankruptcy, then pledged them again to make its own films.
• The second-tier assets can be the winners. Marvel built its empire on heroes other studios had passed over.

Three years before Marvel, Disney had paid $7.4 billion for another creative company with a near-death past: Pixar. For a toy company that nearly went under in the same era, read how Lego came back from the brink. And Marvel’s bondholder fight featured the same activist who later took on Blockbuster: Carl Icahn, in the story of Netflix’s $50 million offer.