Sector sagas keep us all guessing

Is it just me, or has an awful lot been happening in the industry? In the last few weeks alone, Whitbread has agreed a £3.9bn sale of Costa Coffee to Coca-Cola, Patisserie Valerie has come close to collapsing in a web of fraud, Rooney Anand has resigned from Greene King after almost 14 years as CEO and The Restaurant Group has launched an audacious £559m swoop on Wagamama.

The most extraordinary of those stories must surely be Patisserie Valerie. From a journalistic standpoint, this is the story that has it all: a company that was worth £450m suddenly fighting to remain solvent; the suspension, arrest and bailing of its finance director over a potential £40m fraud; the company’s last-ditch rescue by its high-profile chairman.

Luke Johnson has, inevitably, taken plenty of flak over the episode, with journalists leaping with glee on any past references to fraud in his weekly business column in the Sunday Times. His worst traits came out at the shareholder meeting to approve the £15.7m rescue share placing, where instead of showing a bit of humility he came across as surly and rude and managed to get himself into a bit of slanging match with a small investor who happened to be Dame Darcey Bussell’s husband.

It is easy to say that Johnson should have spotted that something was up, but if, as is alleged, somebody you’ve worked with and trusted for well over a decade turns out to have been fiddling the books, what can you do? Although he was executive chairman, his multiplicity of other directorships, not least his role as principal of Risk Capital Partners, meant he could not hope to spot any craftily contrived dodgy dealings.

To my mind, unlucky Luke should be questioning why the likes of Grant Thornton, the group’s auditors, CEO Paul May and head of the audit committee Lee Ginsberg didn’t spot any clues as to what was happening much earlier. I’d be amazed if of any of that trio remained in their roles once a proper set of accounts has been put together and the company is back on a solid footing.

While it is easy to understand the anger of shareholders, the fact remains that Johnson stepped in with his own chequebook to save the company from going bust. After the revelation of the £40m black hole, I was utterly convinced that Patisserie Holdings had had its chips, so for Johnson to engineer a rescue deal that leaves the company intact (albeit at a much reduced value) is a remarkable achievement. The sceptics will no doubt argue that he had no choice if he was to rescue his own career, but that doesn’t diminish what he’s achieved and he has vowed to work tirelessly (and without pay) to restore the company’s fortunes.

Using your noodle

One facet shared by Wagamama and Patisserie Valerie is that they were both, at least until recent events, outperforming the casual dining market and continuing to move forwards in the face of unprecedented pressure from costs, economic and political uncertainty and competition. In the case of the latter, that should probably have set alarm bells ringing. In the case of the former, it has led to a takeover by a somewhat less successful rival.

Not many people had seen The Restaurant Group’s move coming. The assumption had been that once Andy McCue, the TRG chief executive, had finally got its leisure brands back into growth, he would use their cashflow to up the ante on expanding its successful Brunning & Price pub-restaurant business while continuing to develop its concessions division. Despite his betting industry background, his approach had, up until his bold move, appeared to be based on thorough research, analysis and hard work. It was not the most exciting approach, and McCue himself had always appeared more Chris Tavare than David Gower in his methodical approach.

How wrong we were. In what feels like a case of double or quits, he is forking out a sum not far short of TRG’s market cap to add the exciting Wagamama brand to the rather more lacklustre Frankie & Benny’s, Chiquito and Garfunkel’s brands.

So how much of a gamble is it? While the price paid and the dilution from the £315m rights issue has not gone down too well with the market, there is plenty to be positive about. McCue says there is scope to convert some of TRG’s leisure outlets to the noodle brand, while continuing to add as many as 60 sites around the country; he reckons Wagamama has the potential to become a successful concessions brand, while its strength in delivery is also a big plus. Despite the exit of CEO Jane Holbrook, the Wagamama team under Emma Woods should bring plenty to the TRG table, while the addition of Allan Leighton to the board of the enlarged company will also be a big plus.

As far as I can judge, suggestions that TRG investors may veto the deal should prove wide of the mark. Don’t forget that this is McCue’s deal and if shareholders were to reject it, there would be every excuse for the former Paddy Power boss to throw in the towel, leaving TRG in a far more parlous situation.

Whatever next?

So what other exciting things can we expect to happen in the months ahead? Will a Costa-free Whitbread be swallowed up by a hotel industry rival? Will Domino’s Pizza Group whet the appetite of its ambitious Australian sister company, Domino’s Pizza Enterprises? Will Ralph Findlay, having outlasted his bitter rival at Greene King, himself call time on his distinguished career at Marston’s? And who will take TGI Fridays off Electra’s hands? One thing’s for sure: the private equity firm won’t be collecting anything remotely close to the £225m it paid for the business in 2014.