Market Place; Boom in Comic Books Lifts New Marvel Stock Offering

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July 15, 1991, Section D, Page 1Buy Reprints
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While much of publishing is in the doldrums, comic books are booming, in large part because companies have discovered that they can raise prices without driving away many buyers.

Now, the owner of Marvel Comics, the largest comics operation, is trying to sell a minority stake in Spider-Man, the Incredible Hulk, Captain America and all its other superheroes to the public.

Investors seem to be lining up to buy shares in the company, the Marvel Entertainment Group Inc., and late last week the company increased both the number of shares being offered and the price being asked. The sale is expected to be completed this week and will be marked by a visit of Spider-Man to the floor of the New York Stock Exchange when trading in the shares begins.

The sale will enable Ronald O. Perelman, who has controlled Marvel since early 1989, to take out as much as five times the $10.5 million he invested in the company, while still maintaining firm control.

The success of the comic book industry has been increased by a new channel of sales -- the comic book specialty store -- and through the discovery that "price increases have not resulted in significant reductions in unit sales," as Marvel put it in documents distributed to prospective investors. The company said it had a plan for price increases for three years and expects the cover price of a basic comic book, which rose from 75 cents to $1 in 1989, to rise again next year to $1.25. Marvel charges as much as $34.95 for some hardcover collections of old comics.

Figures provided by the Audit Bureau of Circulations show that Marvel's comics sold an average of 8.7 million copies a month in the last half of 1990, up 31.2 percent from 6.6 million in the corresponding period in 1989. Figures for the first half of 1991 will not be out for several weeks, but they are not expected to match the late-1990 level, reflecting the fact that comic book sales peak during the summer, when the prime readers -- those 6 to 18 years old -- are out of school. Sales were 6.3 million a month in early 1990.

Marvel's rapid growth is being used as a key selling point in pricing the shares. In raising the estimated price of the offering, to a range of $16 to $17 a share, from the previous estimated range of $14 to $16 a share, underwriters led by Merrill Lynch & Company and the First Boston Corporation are asking investors to pay up to 23 times the most recent 12-month earnings, of 73 cents a share. To justify that kind of multiple, investors must expect the growth to continue.

Comic book sales numbers are confused, at best. Marvel says there are 43 publishers but only 3 have circulation figures audited by the Audit Bureau of Circulations. Marvel claims a 51 percent market share, with DC Comics, a Time Warner subsidiary that is best known for Superman, having about 22 percent. But DC is only a small part of Time Warner, and one selling factor for the Marvel offering has been the fact it will be the only publicly traded stock that offers a pure play in comics.

By some standards, comics remain a relatively small business. In 1990, Marvel sold $70.6 million in books, a gain of 16.1 percent. It appears that some growth came from seizing market share from competitors, but it is difficult to determine how much.

Marvel's growth in the last year came even though it has no characters now in television shows. Marvel will get licensing revenues from any future shows, but it has no rights to revenues from reruns of past cartoon shows.

For longtime followers of Marvel, the audit bureau's circulation figure of 8.7 million copies a month is emphasized in Marvel's prospectus, which adds that sales have been growing rapidly but does not give historical figures. That must have seemed surprising to longtime followers of Marvel. Early last year, in a filing with the Securities and Exchange Commission, Marvel's parent company reported net monthly sales of 9 million copies in 1989.

Asked to explain the apparent discrepancy, a company official said that he was unsure what the 1989 figure referred to but that it might have included some publications that do not include advertising. He spoke on condition that he not be identified.

One key to profitability in the comic book industry has been the growth of the specialty stores. Those stores accounted for 73 percent of sales last year, and they buy books on a nonreturnable basis, leaving the stores to eat the losses if a book does not sell. By contrast, two of every three comic books shipped to the traditional newsstand business end up being returned.

The sale of stock in the company will not help Marvel to expand, because none of the money will stay at Marvel. The offering will raise up to $82 million, but all the proceeds will go either to pay bank debt or to parent companies of Marvel, which is a subsidiary of a subsidiary of a subsidiary of a subsidiary of a subsidiary of a company owned by Mr. Perelman, best known for controlling the Revlon Group.

The money is likely to come in handy for the Andrews Group, a company about halfway up that chain, which has cash problems because of losses at its New World Entertainment subsidiary, which produces television shows. In a filing with the S.E.C. in May, Andrews said it did not expect the cash flow from its operations to be sufficient to meet its financial obligations, although it expressed confidence that it would get aid from related companies controlled by Mr. Perelman.

But the troubles at New World -- whose shows include "Santa Barbara," "Get a Life" and "The Wonder Years" -- do not obscure the big success story that Marvel has been for Mr. Perelman. When he bought the company, he put up $10.5 million for all the company's stock, as well as taking out a loan for $73.5 million, which went onto Marvel's books.

Previous dividends have provided $1.9 million to parent companies, and after this offering the plan is to send another $30 million or so in dividends upstream. In addition, Andrews will get as much as $20 million from selling some of its own shares in the company. That produces total cash of more than $50 million and still leaves Andrews with a 60 percent stake in Marvel.

Andrews will keep total ownership of Marvel's British operations, which have been losing an undisclosed amount of money.

Marvel's timing of the offering appears to be excellent. It is coming as summer, the traditional strong selling season, gets going, but before sales for the first half of 1991 are reported. The prospectus for the offering does not emphasize the seasonal factors.

Moreover, Marvel's recent financial results have benefited from a decision taken by previous owners of the company to set up a reserve for losses stemming from a 1988 decision to get out of the children's book business. Those losses were less than expected, which enabled Marvel to raise pretax profits by $500,000 in 1990 and by $400,000 in the first four months of this year.

But those increases accounted for only a small part of the gain in profits. In 1990, the company earned $5.4 million, more than double 1989's $2.4 million, as total revenues, including licensing income as well as publishing revenue, rose 18 percent, to $81.1 million. For the first four months of 1991, profits more than doubled again, from $953,000 to $2.1 million, on a 21 percent rise in revenues, to $25.7 million.

Can those gains continue? The apparent popularity of the offering seems to indicate that many investors believe they can.