European Investors Join US Peers to Take on Tesco over Accounting Failures

The grocery giant faces legal action on both sides of the Atlantic.

A group of UK institutional investors who held shares in the European grocery giant Tesco last year are joining a move by US pension funds to take the company to court, a spokesman has announced.

On 22 September 2014 Tesco announced that it had overstated its expected profit for the half year by £263 million ($392 million), prompting a sharp decline in the value of the company and driving the share price down to a 14-year low of 164.8p.

“Tesco is one of the widest held stocks in the UK and this loss has hit pension funds and investors across the UK and beyond.” —John Bradley, TSCAs a result, Tesco Shareholder Claims Limited (TSC), a not-for-profit group, has been set up to represent shareholders in the grocery company—and take legal action against it.

The move follows a lawsuit filed in October by shareholders in the company based in the US. The suit’s lead plaintiff was Irving Firemen’s Relief and Retirement Fund, which represented a larger group of investors.

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The group overstated its expected profits by almost one quarter. Immediately after the overstatement was announced, the company suspended the managing director of its UK operations, which, the US lawsuit claimed, added to the downward pressure on Tesco’s share price. The London-listed firm’s stock has since recovered to around 246p since it announced a rigorous investigation and new future policies.

Separately, the UK’s Serious Fraud Office has started a criminal investigation into Tesco’s accounting irregularities.

“TSC argues that whilst it supports the turnaround strategy being undertaken by the new management team, a permanent destruction of value has occurred and had the accounting irregularities not taken place the share price, and value of the company, would today be materially higher,” the UK shareholder group said.

TSC said the group expected the claim to be in the region of 50p-70p per share.  Tesco has in excess of 8 billion shares listed on the London Stock Exchange. The US lawsuit centres on the ownership of American Depositary Receipts.

“Tesco is one of the widest held stocks in the UK and this loss has hit pension funds and investors across the UK and beyond,” said John Bradley, chairman of TSC. “We look forward to bringing this claim to court.”

TSC said the arrangement for investors would work on a “no win, no fee” basis with the legal team.

Tesco declined to comment on the legal moves to the BBC.

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