Elliott Management, the vulture fund famed for being one of the “holdout” creditors refusing to accept Argentina’s debt-forgiveness deal, has made a profit of over £273m in two years on its investment in the collapsed video games retailer Game Digital.
The company, headed by the Wall Street billionaire Paul Singer, invested £106m in buying Game from the administrators, who shut hundreds of stores and shed 2100 jobs in 2012.
Elliott closed a further 40 stores and then floated the company on the stock market in June this year, cashing in £101m of its shares. Then, yesterday, it sold a further £58.5m worth.
Its remaining 48.3 per cent of the business is worth just under £220m.
As if that £273m profit were not enough, it is also thought to have made several million pounds more in interest repayments on an asset-backed loan it advanced to Game, which was repaid in the flotation.
OpCapita, the private equity firm run by the investment banker Henry Jackson, fronted the Game restructuring project but Elliott was the 99 per cent owner before the float.
Elliott’s phenomenal success on Game typifies the riches that specialist “brass from muck” investors can make picking over corporate corpses. However, the practice can be extremely controversial. Elliott and a similar fund called Greybull were vilified over a previous deal with OpCapita – the takeover of the electricals retailer Comet, which collapsed under their ownership. Reports said that, despite the collapse, the investors stood to get as much as £117m after only investing as little as £35m.
Elliott declined to comment.
The funds argue that they take huge risks in backing such stricken companies. Only this week, another Greybull investment – Rileys sports bars and pool halls – collapsed into administration just two years after Greybull took it over after a previous administration. It is not known what the impact was on Greybull’s finances.
For this reason, vulture funds are choosy about which situations to get involved in. Phones4U, for example, is unlikely to have a future unless the mobile operators suddenly decide to resume their supply contracts.
The likes of Elliott also contend that few other investors have the appetite to take on collapsed companies and that their investments can save hundreds of jobs. In the case of Game, although 2,000 workers lost their jobs and more than 300 stores were closed, Elliott’s investment kept the chain going. It now trades from 321 stores in the UK and 239 in Spain.