Rumours have long since circulated surrounding Blue Skye, the lesser-known company that played a huge part in Elliott Management’s takeover of AC Milan. Supporters of the club may not realise that this European investment group was instrumental in the unorthodox acquisition of the Milanese giant.
But who are Blue Skye?
The company was founded by Neapolitan financiers Salvatore Cerchione and Gianluca D'Avanzo. Like Elliott Management, Blue Skye is fiercely private, even though its portfolio includes the world famous Harry's Bar in Venice as well as lavish properties around the world.
Both founders do appear to have had a long-standing relationship with former AC Milan CEO Adriano Galliani. All were on the board of directors of SOPAF, a Milanese private equity company that held a 50% stake in Blue Skye until 2006, when they sold those shares to a company named DB Zwirn.
Adriano Galliani was admitted onto the board of SOPAF as an advisor in November 2005, owning 4.69% of the total shares. The businessman was then named on the internal control and corporate governance committee of the company in July 2006 and became a full member of the board on 4 May 2007, where he remained until December 2009.
Between 15 August 2005 and 16 August 2005, Galliani acquired additional shares for a total value of 9,960 euros. In December 2009, the former Milan chief sold 180,000 SOPAFshares for a total value of 20,898 euros, equalling 0.04% of the share capital as well as ex-wife Malika El Hazzazi also sold shares held in the company for a total value of €157,000 around the same time.
Blue Skye was therefore founded as a joint venture between SOPAF and DB Zwirn, headed up by Cerchione and D’Avanzo. DB Zwirn, owned by Daniel Zwirn, was liquidated in 2008 due to financial irregularities. The businessman then created another fund, Arena Investors, which reportedly participated in the loan provided to Mr. Li via Project Redblack and now owns a small percentage of the club.
Italian TV channel RAI 3 made an investigative programme alongside reporter Luca Chianca which looked into the ties between Blue Skye founders Cerchione and D’Avanzo and Galliani, Silvio Berlusconi’s long-time right-hand man at Milan. During the report, Chianca asked Galliani a direct question regarding his ties to Blue Skye, but instead of a response received only silence.
Despite their involvement in previous large deals, their role in the purchase of AC Milan—a football club which holds enormous political and social influence—was surely Blue Skye's most important project, and Elliott themselves would have found it almost impossible to pull off such a swift and huge acquisition without the help of an intermediary.
Indeed, Felice Raimondo, the legal analyst and writer—whose 2018 book named Il diavolo ? nei dettagli (The Devil is in the Details) explored the minutiae of the AC Milan deal—revealed that Blue Skye was "undoubtedly essential" in terms of helping Elliott to quickly structure a deal that would ultimately see the hedge fund seize control of the club in 2018.
“The help of Blue Skye, a company specialised in debt restructuring among other things, was undoubtedly essential for the purchase of AC Milan” the Italian lawyer exclusively revealed to Forbes. “Thanks to the intervention of Blue Skye, a company already present in Luxembourg, Elliott was able to speed up the operations relating to the bridging loan made towards Rossoneri Sport Investment Lux, another Luxembourg company at the time owned by Mr. Li who purchased the 99.93% of Milan.
“In fact, on March 20, 2017, Blue Skye took control of a Luxembourg company, namely the Luxembourg Investment Company 166, which on April 4, 2017 changed its name to Project Redblack, i.e. the vehicle that physically lent the decisive money for the closing to Rossoneri Sport Investment Lux.”
A deeper examination of Blue Skye has revealed some legal issues faced by the firm in the past, a situation that displays some surprising similarities to the Milan deal. Back in 2012, Blue Skye Special Opportunities Fund was accused of “being involved in a complex fraud which involved the diversion of substantial assets in an investment portfolio to a new structure in breach of trust.”
A summary of this case—based in the UK and brought about by the Fortress Vale Recovery Fund—was put together in a public memo by DLA Piper in 2013. It revealed that the claimant alleged that Blue Skye, acting as an English limited partnership in this case “designed and implemented a dishonest scheme to reorganise the fund and its assets, the purpose and effect of which was to diminish or eliminate the rights and interests of the partners of the fund in relation to the assets, to take control and benefit of the assets themselves and to enable them to extract fees and other value from the assets.”
Blue Skye applied to the court for a stay of the case, yet this was denied and The Lawyer went on to describe the subsequent trial in 2014 as of the “top cases” of that year. The publication revealed the allegation that the scheme was “designed to enable Cerchione and D’Avanzo to take control of it and benefit themselves. Refuting the allegations, the defendants contend that the reorganisation was necessary to comply with Bank of Italy regulations and to raise liquidity.”
This blog post confirms that both Fortress and Blue Skye were still locked in a legal dispute until at least September 2014 and at this point the trail runs cold. The natural conclusion to draw here is that this case was eventually settled out of court.
With this in mind, we now turn our attention back to the Milan case, and Felice Raimondo explains exactly how control of the loan company was passed back to Elliott from Blue Skye.
“Subsequently, Blue Skye on April 10, 2017 ceded control of this case – Project RedBlack – to two vehicles owned by Elliott based in Delaware (King George and Genio),” the lawyer continued. “So in just 20 days Blue Skye prepared the ground for Elliott to physically operate in Luxembourg through Project RedBlack, and then facilitate the necessary loan for the closing by the Chinese led Rossoneri Sport Investment Lux.
“On 13 April 2017, Elliott put in a clause on this company, which was exploited at the time of execution when Mr. Li became insolvent by breaking one of the established covenants.”
Why did a powerful firm like Elliott need another company to facilitate the loan? The simple answer is speed.
“Luxembourg is undoubtedly a privileged destination for mergers and acquisitions as it has significant tax, bureaucratic and even judicial facilities,” said legal expert Raimondo. “Just think that in July 2018 Elliott released the pledge to Rossoneri Sport Investment Lux in just a few days, taking control of the vessel that currently holds 99.93% of Milan with extreme speed. This is nothing comparable to similar procedures under Italian law, which takes much longer.”
Blue Skye and Elliott had come to the AC Milan deal via the introduction from Mr. Li’s Italian lawyer Riccardo Agostinelli as a last resort after too much time had been wasted on seeking out more favourable solutions. As a partner at law firm G.A.P, Agostinelli had previously worked with Blue Skye over the debt restructuring of Harry’s Bar and again alongside the Neapolitan financiers as well as Elliott over the Bauer Hotel deal in the same city.
Furthermore, in 2014 Agostinelli had worked on the debt restructuring of San Siro neighbours Inter. That loan had used the Inter brand itself as collateral, but Agostinelli – who was also working as Mr. Li’s lawyer – failed to come up with a similar loan for Milan, leaving his client in the hands of Elliott.
“Yes, Blue Skye collaborated with Elliott for the purchase of the famous Hotel Bauer in Venice,” Raimondo confirmed. “In 2016, Blue Skye restructured the debt of the hotel, then in 2017 signed the preliminary purchase agreement with the American fund and in 2019 they completed the operation together.”
Just like with the Bauer Hotel—Blue Skye’s owners were handed a piece of the AC Milan pie. Could a parallel be drawn with those aforementioned accusations from 2012, that Blue Skye organised a deal “to take control and benefit of the assets themselves”?
“Salvatore Cerchione and Gianluca D'Avanzo are members of the AC Milan board of directors and on 10 October 2018 D'Avanzo also assumed the position of Chief Financial Officer,” Raimondo confirmed to us.
That trust presumably lies in the way neither company enjoys the glare of the media spotlight, but as a Rossoneri supporter himself, Raimondo believes that Elliott need to understand that visibility is paramount for football club owners.
“Elliott themselves shy away from publicity,” the lawyer concluded. “These companies have their own school of thinking in business, without making proclamations. This is a novelty for Italy where instead we have always been used to owners who had more direct contact with the public.
“In this sense, I believe that the current ownership should intensify the relationship with the fans, because Italian sport and football in particular is very passionate. Getting more involved with the club’s environment more is a choice that would pay off in terms of esteem and credibility. On the contrary, managing the company while remaining perched in their ivory tower would only bring distrust.”
In summary, Blue Skye have a long-standing and close working relationship with Elliott and played a major role in the acquisition of AC Milan. That allowed them to not only become an integral part of the initial takeover but, while remaining firmly in the shadows, they continue to play a major role in the immediate future of the club.
