It looks like Luke Johnson’s reputation will not be totally trashed after all after he announced a way for the company to be rescued today. It is proposed to do a placing at a heavily discounted share price of 50p (last price before suspension was 429p). This will raise £15 million from the issue of 30 million shares. The current shares in issue are 104 million so that implies substantial dilution although I have seen worse.
It will take some time to organise the placing as it requires a General Meeting to authorise the full number of shares required. In the meantime Mr Johnson is to loan the company an immediate £10 million on a three year term and interest free (that is generous, is it not?). In addition he will provide a further immediate bridging loan of £10 million which will be repaid out of the placing.
The directors estimate the current revenue run rate at £120 million per annum with EBITDA of £12 million although that is clearly based on only an initial review so is subject to doubt.
Apart from the usual problem that most placings are not open to private investors, this looks a good deal and much better than the likely alternatives. If this is pulled off, it seems my small holding in the company won’t be totally worthless after all.
There has been much hand wringing among financial commentators about the fact that the fraud was not obvious from the accounts of the company. That’s assuming the cash was not stolen in the last few months which seems unlikely although at this point in time we do not know. But false accounting is often not obvious. It could be many months before we find out what the source of the problem was, and whether the auditors fell down on the job or not, but it’s good to hear that the company’s finance director, Chris Marsh, was arrested by the police. It looks like prompt action by the regulatory authorities is being taken which is often not the case.
Recently I had a call from Cornhill who I am registered with for placings. They wanted to go through a long conversation to confirm my KYC details even though I had only given them very comprehensive information eighteen months ago and I was happy to confirm that nothing had changed. After a lot of pointless debate, I told them to close the account (and the linked account with Jarvis – total cash held £1,600 and no shares). This they refused to do initially unless I provided more evidence of who I was and the bank account I wanted the money sent to (which was the one already known to them). I had to threaten then with a complaint to the FCA and the Financial Ombudsman for wasting my time before they eventually backed down.
This is compliance gone mad. It’s difficult enough to open an account now, but it should not be that difficult to close one.
Anyway I might be missing out on any placing for Patisserie as a result but I feel life is too short to waste time on tedious KYC checks.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
Surprised by the comment about it being a “good deal” – ShareSoc is meant to stand up for retail investors… they have been totally screwed over by the rescue, and obviously the fraud.
Dear Envers, Rest assured ShareSoc will stand up for retail investors in this case and others. I think it is too early to decide what to do and whether a campaign is necessary or what its aims would be. I will discuss CAKE with the FCA and FRC when I next meet with them.
Please note that the views expressed in the original post are those of the author and not necessarily ShareSoc’s.
Chris Marsh, the finance chief at the centre of its financial catastrophe, cashed in millions of pounds worth of shares in the business this year. Mr Marsh has sold more than £5m worth of shares since Patisserie Valerie floated four years ago, the vast majority of them in the past eight months.
On 13 Sep the Telegraph reported “It is thought that Mr Johnson participated in the equity raise, which was limted to large-scale investors, but it remains unclear whether his 37pc stake was diluted.
Crystal Amber’s head Richard Bernstein said that the placement had protected Mr Johnson’s fortune locked up in his stake from being wiped out. He added: “Two thirds of the equity raise is going to pay back the man who owns £166m of shares that would be worth zero without a raise.” ”
Today the Evening Standard reported “The way last week’s bail-out was orchestrated also leaves much to be desired, particularly for retail investors. Institutional funds were sold shares at 50p, compared with the last day’s trading price of 429.5p, but ordinary punters had no such luck.
One private equity specialist in such situations says the company could have set up an additional facility to issue extra stock at the same 50p for small shareholders. At such a discount, even given how impossible it now is to trust this business, many might have considered it a gamble worth taking.”
Cliff Weight, Director, ShareSoc
I consider it a “good deal” because the other likely options were straight into insolvency or a pre-pack administration – in both cases shareholders would have lost everything. In this case smaller shareholders are effectively being bailed out by Luke Johnson (via loans) and by larger shareholders willing to take up the placing shares – but the latter are definitely risky without knowing more about the financial black hole. It might have been preferable to have an “open offer” alongside the placing, but given the urgency of the immediate fund raising requirement that was always going to be difficult. I certainly would have been in two minds about taking up the placing shares, even at 50p.
Cliff is also quoted in the Mail, here:https://www.dailymail.co.uk/money/markets/article-6275371/Auditors-face-probe-Patisserie-Valerie-crisis-following-discovery-28-8m-black-hole.html :
“Cliff Weight, director of investor group Sharesoc, said: ‘I find it absolutely extraordinary that a company with revenues of £114million could ever lose track of £20million.’
Weight also criticised the raising of £15.7million on Friday using heavily discounted 50p shares – far below the 429p the company was trading at before the crisis.
The fundraising was only open to large shareholders, but Weight said the opportunity should have been offered to retail investors.”
Mark Bentley, Director, ShareSoc
I was quoted in today’s Daily Mail as well
here https://www.dailymail.co.uk/money/markets/article-6279129/Patisserie-Valerie-chief-quits-board-rival-Restaurant-Group.html
They came under fire yesterday for the number of positions they hold at other businesses, with individual shareholders’ group Sharesoc saying it ‘seemed to be far too many’.
Johnson, 56, has admitted he was stretched too thin and vowed to scale back his commitments. Cliff Weight, ShareSoc’s director, said: ‘It’s clearly the right decision for Johnson and May to step back from some of their other roles.’
However, he added: ‘For the moment, they are definitely the right people to take charge of the rescue but eventually they should ask themselves whether they should lead the company into its next stage.’
A spokesman for Johnson and May last night declined to comment.
Well I was wrong, turns out not letting retail investors take part was a absolutely fantastic deal for them! I do however believe Mr Johnson’s reputation has now been ‘totally trashed’.
Good to see ShareSoc being mentioned in the press on this.