Just when it looked as though Patisserie Holdings (CAKE) might have been toast due to accounting fraud, an equity issuance appears to have salvaged the business. The owner of the Patisserie Valerie café chain successfully placed 31.5m shares at 50p each, raising £15.7m. The money, alongside funds from chairman Luke Johnson, looks to be enough to plug the accounting hole the cake maker discovered last week. The fully subscribed placing suggests that investors are willing to overlook this incident, and believe in the future of the business.
On 12 October, the company had announced that it needed an immediate cash injection of £20m. Otherwise, it would be forced to appoint administrators. It had discovered net debt of around £9.8m – a striking difference from the £28.8m net cash reported at the half-year results in May. Patisserie stated that the previous cash position had been misstated as a result of "fraudulent activity and accounting irregularities". Chris Marsh, the group's suspended finance director, has been arrested and released on bail.
In an attempt to save the business, Mr Johnson has given the company a three-year £10m interest-free loan. He has also provided a £10m bridging loan to pay off any immediate liabilities. Some money from the placing will be used to repay the loan.
The 50p price per share in the placing is well below the 429.5p at which the shares were suspended from trading, and could have been motivation enough for some investors to take a punt on a recovery. However, such tactics have not worked for other companies recently.
In March, Conviviality attempted to raise £125m to recapitalise the business, but collapsed following insufficient demand. Taken together, this might suggest investors recognise Patisserie still has potential as an investment.
