Patisserie Shareholders Seek Answers at Rescue-Vote Showdown

(Bloomberg) -- Patisserie Valerie’s holding company is heading for a Thursday shareholder vote on management’s rescue plan, giving aggrieved investors an opportunity to make their voices heard, even if there are few options to take action.

Patisserie Holdings Plc, led by Chairman Luke Johnson, discovered on Oct. 9 that its books were incorrect. Rather than the 28.8 million pounds ($36.9 million) in cash it said it had in May, the cake-shop chain had a deficit of at least 9.8 million pounds. The company ousted its finance chief, who was later arrested and then released.

Shareholders will vote on whether to approve the plan, which would dilute their holdings. The 30 million new shares at a price of 50 pence each is a stark contrast to the chain’s stock price of 429.50 pence before trading was suspended Oct. 10.

Dissatisfied holders may have no option but to accept management’s plan. The Sunday Times reported that restaurateur David Scott had enlisted merger consultancy Transcend Corporate to approach shareholders about a takeover bid. Transcend Chairman Ian Aldridge said the company had no such plans with Scott and did not represent him, but had discussed with him buying a part of Patisserie’s business.

Investors Shocked

The ordeal has been a shock to some investors, who could only watch as the news unfolded.

“It was a desperate move,” said Chris Boxall, fund manager at Fundamental Asset Management, whose clients own Patisserie shares and owns some himself. “I think they could have communicated with the primary shareholders, which they clearly didn’t do.”

Patisserie declined to comment on its engagement with shareholders.

The rush to action with investors in the dark can be justified in a dire situation like the one Patisserie faced, according to Julian Connerty, a lawyer specializing in fraud and recovery actions at London-based Signature Litigation.

“The courts would say management is just doing the best interest of everybody,” Connerty said. “If the company goes under, it will prejudice everyone.”

Patisserie also issued a series of sales updates in the days following the revelations.

New Revelations

As an auditor examines Patisserie’s books, revelations continue to trickle out. The company confirmed Oct. 24 that executives had been granted share options worth millions of pounds that weren’t disclosed in filings. Johnson had been chairman of the remuneration committee.

Roger Lawson, a retired software executive and former board member of nonprofit shareholder-advocacy organization ShareSoc who owns shares in Patisserie, supports the management plan as the only alternative to administration. He still wants more answers from management.

Johnson maintains a 28.5 percent stake in the company, Chief Executive Officer Paul May holds 3.4 percent and Ben Redmond, a co-founder of Johnson’s private equity firm Risk Capital Partners, holds a further 1.7 percent, according to data compiled by Bloomberg. Management needs at least 75 percent of the shareholders to vote for its plan for it to go through. Even if it is approved, shareholders could still demand changes.

“Whether there is a compensation claim or class action, it’s too early to say,” said Cliff Weight, a ShareSoc director.

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