QMH's missing millions

Chris Rouse, senior director of CBRE Hotels, finally gets the answer - and doesn't like it
I attended the Hotel Investment Conference in London in 1993, and the atmosphere was like nothing I had ever experienced because, on that morning, Queens Moat Houses (QMH) had issued its long-delayed results for 1992. The market had been expecting a repeat of 1991's profits - some £90m. What it got was a restatement of 1991's figures, a loss of £56m, and a loss of £1.04b for 1992 itself. It also got a balance sheet restatement showing a reduction in net assets of £1.34b. QMH was bust.

Six weeks ago, and 10 years later, the Department of Trade & Industry report into these events was finally published.

Some rather intemperate statements were made from the platform at that conference, which were nothing in comparison to the gossip in the corridors. It was well known that Jones Lang Wootton (JLW), as it was, had been appointed by the banks and new management of QMH to replace Weatherall, Green & Smith (WGS), as it was, as valuer to the company.

The question on everyone's lips was simple: who was right, Clive Leigh of JLW or Stephen Richardson of WGS?

So, what have the distinguished inspectors, Mr Adrian Burns FCA and Mr Patrick Philips QC, found? They have laboured for 10 years and produced a remarkably well-written report of some 530 pages. It is a gripping read. At fault, they report, was the QMH management, led by John Bairstow and Martin Marcus. The auditor, Bird Luckin, QMH's merchant banker, Charterhouse, QMH's lenders and the major high-street banks are also all criticised. QMH's accounts were rubbish, from at least 1981, yet it borrowed millions, issued shares, bought hotel chains and traded merrily away for a decade.

WGS is roundly criticised for letting one man, Jim Baker, handle such a huge valuation single-handedly for so many years, particularly as he had little, if any, international experience. When it came to the crunch, it was Richardson who responded properly, and the inspectors found that his valuation of £2.145b was quite properly prepared. His reputation is vindicated.

What of JLW's valuation of £892.2m? That, too, was quite properly prepared. In the words of the inspectors: "There simply is no right or wrong value, merely different opinions." WGS took an optimistic view of the market, JLW a pessimistic view.

So this is where QMH's "missing billion" went. Ten years, 530 pages and a "difference of opinion". I can't help but think that valuation is rather more scientific than that.