The legacy of Comet: poor get poorer, rich get richer

A token £2 investment could yield a multi-million pound return for the owners of the collapsed electrical chain, says James Thompson

The human cost of Comet collapsing into administration on Friday is now clearer for staff and customers of the failed electricals chain.

More than 6,600 jobs are at risk at the 236-store retailer while among the hordes of Comet customers who found themselves unable to use Comet gift cards at the weekend was a mother who had a £500 voucher from the charity Family Fund to buy an iPad for her son, who has cerebral palsy.

In stark contrast, the private-investment firm OpCapita and its US backers, thought to include Elliott Advisors, could make millions of pounds from their acquisition of Comet from Kesa Electricals (renamed Darty) for a token £2 in February.

With possible buyers thin on the ground, OpCapita and its investors, as the top creditors, will be among the first in line to receive a payout from an expected liquidation sale at Comet before Christmas, with its stock estimated at £120m.

While more than half of this stock belongs to suppliers under "retention of title" terms, OpCapita and its backers could recoup about £50m from the likely liquidation.

Comet is merely the latest retailer to come a cropper after falling under the ownership of a so-called investment company, or private-equity firm.

The fashion chain Peacocks, the lingerie retailer La Senza and the gift specialist Past Times suffered a similar fate this year.

Indeed, the prospect of OpCapita, whose founder and chief executive is Henry Jackson, toasting another profitable exit from a troubled UK chain has got plenty in the retail sector hot under the collar.

Under its previous guise as Merchant Equity Partners, OpCapita acquired flat-pack furniture retailer MFI for a nominal £1 in 2006. While MFI collapsed into administration for the final time in November 2008, OpCapita has boasted it made a "small profit" from the now-defunct chain.

But Mr Jackson has vehemently previously denied the firm is a liquidator, stressing it focuses on realising value through operational change. Sources cite its efforts to turn around Comet: such as hiring John Clare, the former chief executive of Dixons Retail, which owns Currys and PC World, as Comet's chairman; and reducing its costs through cutting the number of head office and support staff.

In reality, Kesa was also desperate to offload Comet, which made an estimated loss of £35m in the year to 30 April 2012, on revenues of £1.3bn. Furthermore, OpCapita was the only game in town to rescue it.

Critical to getting the deal away was the £50m dowry that Kesa paid for OpCapita to take Comet off its hands. But OpCapita placed the dowry, a £30m working capital facility, and a £40m asset-backed loan into an investment vehicle, Hailey Acquisitions. By structuring the deal through this parent company, OpCapita was able to protect its own funds and those of investors, including London-based Greybull Capital, in the event of a administration. While ring-fencing their investment may seem controversial, it is common with private-equity deals and the truth is that the deal would probably not have happened had the dowry been placed straight into Comet.

Sources have played down the prospect of a quick, or major, payout for investors from its warranties business, Triptych Insurance. They cite the fact that the warranties sector is tightly regulated and that sufficient funds would have to be held to meet the terms of three to five-year repair, or replacement, contracts.

But the reality is that Mr Jackson and OpCapita's investors are likely to come out of the expected liquidation of Comet smelling of roses. These flowers, or the more traditional poinsettia, might be all that some of Comet's staff can afford this Christmas.

Nick Hood, an analyst at Company Watch, the credit information specialist, said: "No doubt the strategies adopted by OpCapita have been based on sound legal advice, but when 7,000 UK jobs are at risk and Comet's creditors, landlords and other stakeholders face huge losses, the morality of this unhappy retail adventure will assume far greater importance in the years to come in the eyes of the business world."

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
News
i100
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Arts and Entertainment
JK Rowling will not be releasing a 'romance' novel anytime soon
books
Life and Style
tech

Of all the computers Apple has ever made there’s only one that Steve Jobs had to sell his car to finance

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer with T-SQL, Watford, Hertfordshire - £350 - £360

£350 - £360 per day: Ashdown Group: SQL Developer with T-SQL, Watford, Hertfor...

Chief Financial Officer

120-150k: Accountancy Action: We are looking for an experienced CFO from a min...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?