LONDON (Reuters) - Patisserie Valerie (CAKEP.L), the British cafe chain rocked by an accounting scandal and the arrest of its finance boss, has been saved thanks to 20 million pounds ($26 million) of loans from its chairman, the entrepreneur Luke Johnson.
Patisserie Holdings said on Friday that Johnson had stumped up loans, giving it the breathing space to raise 15.7 million pounds in a heavily discounted placing announced later in the day.
The new equity and debt injection helped save 2,500 jobs and stave off the company’s collapse, after it was plunged into crisis on Wednesday, when accounting irregularities emerged and Britain’s tax office said it was owed 1.14 million pounds.
The cafe chain revealed the extent of its problems on Friday when it said it needed 20 million pounds immediately to prevent its collapse, warning that core earnings for the current financial year would likely be 12 million pounds, 60 percent lower than consensus.
Patisserie Valerie said earlier on Friday that its suspended finance director Chris Marsh had been arrested and released on bail.
Britain’s anti-fraud agency said separately it had opened a criminal investigation into an unidentified individual in connection with the scandal.
Patisserie Holdings and the Serious Fraud Office (SFO) declined to comment further. Marsh did not immediately reply to a request for comment from Reuters on social media site LinkedIn.
Patisserie Valerie traces its roots back to 1926 when Belgian-born Madame Valerie opened a shop in London’s Soho district.
The business was bought by Johnson’s private equity firm Risk Capital Partners in 2006. Johnson, the executive chairman of Patisserie Valerie and owner of 37 percent of the company, made his name building the Pizza Express restaurant chain.
The suspended finance director Marsh, who joined the company in 2006, was an integral part of its growth. Patisserie Holdings had just eight stores in 2008 and now operates more than 200 across Britain, focused on Franco-Belgian cakes such as mille-feuilles and eclairs.
Shares in the company have been suspended from trading since Wednesday, when it announced a “material shortfall” between its reported accounts and its true financial health.
The placing took place shortly after it was announced, with shareholders committing the funds ahead of giving their formal approval for the conditional portion of the fundraising at an extraordinary general meeting scheduled for Nov.1.
Some 31.5 million ordinary shares were placed with institutional investors at a price of 50 pence per share compared with a pre-suspension share price of over four pounds.
That followed Johnson’s provision of a 10 million pound interest free loan for three years, and a bridging loan for up to 10 million pounds, which is due to be repaid following receipt of the proceeds of the placing.
“Based on the current information available to them, the directors believe that upon completion of this equity and debt fundraising, the group will be able to continue trading in its current form for the foreseeable future,” the company said in a statement.
The Financial Reporting Council, which polices accounting in Britain, said on Friday it was looking into the case too.
“We ... will give full consideration as to whether further action is appropriate as more facts become available,” it said.
Patisserie Holdings’ accountants, Grant Thornton, had no immediate comment.
Reporting by Sarah Young in London, Justin George Varghese and Sangameswaran S and Noor Zainab Hussain in Bengaluru, and Huw Jones in London; Editing by Mark Potter, Adrian Croft and David Evans