Goodbye, Marvel

Of all the stocks that were good to me this year, you were the best, Marvel Entertainment (NYSE: MVL  ) . You've more than doubled from my original purchase price. Every one of the long-term call options I bought in early 2008 were winners; one was a multibagger.

If only I'd found you earlier, as David Gardner recommended in the pages of Motley Fool Stock Advisor. You know what, though? I don't regret waiting. Yeah, my returns could have been bigger, but my initial skepticism and subsequent due diligence made me a better investor.

I'm taking the lessons learned with me as you head off into the arms of Walt Disney (NYSE: DIS  ) for $4 billion in cash and stock. Here they are, presented in no particular order:

1. Assume the worst.
At first, I worried that your stable of movie-worthy characters for the new studio would be limited at best. I also didn't like how you were using cash flow to buy back shares, even as debt and film production costs loomed.

Messing with a model that included stable licensing relationships with Sony (NYSE: SNE  ) and News Corp.'s (NYSE: NWS  ) 20th Century Fox seemed counterintuitive.

2. Try to prove yourself wrong.
So I went digging. I had to know why your executive team was willing to take on balance sheet risk, just as you needed a cash cushion. The SEC filings explained a lot. Executives had negotiated a non-recourse debt facility that would be repaid via box office and DVD receipts, with any excess cash held in escrow for at least three films.

Thus, your existing free cash flow from licensing, publishing, and toys was, in fact, still free. Buybacks began to look smart, as did your signing of Robert Downey, Jr. to play Tony Stark in your first self-produced film, Iron Man.

3. Meet and talk with management as often as possible.
By the beginning of 2007, I had become enthusiastic about your business. I wasn't 100% sold, though. So on a trip to Fool HQ in February of that year, I stopped through New York to visit your modestly appointed headquarters and see the legendary bullpen where Jack Kirby, Steve Ditko, John Romita, and so many others had created the comics I collected as a kid.

I left impressed. Editor-in-chief Joe Quesada talked to me about how his team was building an R&D machine for the rest of the company via comics. John Turitzin and Matt Finick talked about conserving cash and crafting a marketing plan to capitalize on what the editorial department was creating. All three seemed confident, and they inspired confidence in me. In May of that same year, I clicked the "buy" button for the first time.

Now, I'm hours away from trading those same shares for a big chunk of cash and a healthy pile of Disney shares. Goodbye, Marvel. I'll miss what we had, but I'm better off for the experience.

Walt Disney and Marvel are Motley Fool Stock Advisor selections. Walt Disney is also a Motley Fool Inside Value recommendation. The Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He currently owns shares of Marvel Entertainment. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool .The Fool's disclosure policy has never been to the House of Mouse. Have you?


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