Patisserie Valerie rescue deal secures 2,800 jobs

Patisserie Valerie has found the right ingredients for a dramatic rescue deal – but its shareholders’ cake will be 90% smaller after a “harrowing week” for the Birmingham business.

In less than seven days the cake retailer has gone from a casual dining success story to a business case study, although it has managed to stay alive.

It still faces a Serious Fraud Office investigation that has seen its finance director Chris Marsh arrested, a HMRC winding-up order for unpaid taxes, and an accounting black hole that meant the supposedly-cash positive company actually had undeclared overdrafts totalling nearly £10m.

But its 200 stores remain open after executive chairman Luke Johnson made £20m available in emergency funding on Friday to prevent the company’s collapse.

Shareholders, including fund managers Schroders, Invesco Perpetual and Miton, have bought in at 50p-per-share to provide £15.7m of funding.

But Patisserie Valerie, which had its shares suspended on the Alternative Investment Market at 429.5p when its financial crisis was revealed on Wednesday, is expected to have a market value of less than £70m when it does resume trading – some £380m less than what it was worth.

The biggest loser is Johnson himself. His 37% stake is worth £140m less than it was a week ago while the cost to the reputation of the Sunday Times business columnist will take much longer to calculate.

Johnson bought the company in 2006 when it was 80 years old but had just eight stores, and Marsh joined in the same year. It had 89 stores when it floated in 2014, with a market value of £194m, and its stores and shares had more than doubled in the following four years.

Unsurprisingly Johnson’s weekly column didn’t appear this week, but he did tell the newspaper it had been “the most harrowing week of my life”.

Luke Johnson

He said: “I believe in the business as an economic entity, so I don’t think it was a wholly emotional decision, but I think there was a moral obligation.

“There were 2,800 jobs at stake, there was 12 years of effort that I and colleagues had put into the business and the board were determined not to allow the business to go into administration.”

On Tuesday the board learnt of “significant and potentially fraudulent” accounting irregularities and suspended Marsh. He was arrested, then bailed, on Thursday as police investigate potential criminal actions.

The investigations, which include an internal review by PwC to establish the true state of the business’s finances, will examine what was known by Patisserie Valerie’s senior management, its auditors Grant Thornton, and the banks which provided the overdrafts, Barclays and HSBC.

Patisserie Valerie’s most recent published accounts, for the year to September 2017, showed pre-tax profits of £20.1m on revenues of £114.2m. It is now expected those figures, and those of previous years, will need to be revised down significantly.

In the aftermath of the company’s troubles, chief executive Paul May has resigned as a non-executive director of Frankie & Benny’s owner The Restaurant Group with immediate effect.