Tesco has agreed to pay a £129m fine imposed by the Serious Fraud Office to avoid prosecution for accounting errors committed by its subsidiary Tesco Stores.
A statement from the company confirms it has reached a deferred prosecution agreement with the SFO regarding historic accounting practices.
Tesco has also agreed with the FCA to a market abuse finding relating to a 2014 trading update that gave a misleading impression about the value of its publicly traded shares and bonds.
It has agreed to pay compensation to investors who bought shares or bonds between 29 August and 22 September 2014.
The regulator estimates the total amount of compensation will be approximately £85m, plus interest.
It is the first time the FCA has used its powers to get a listed company to pay compensation for market abuse.
According to an FCA statement, on 29 August 2014, Tesco published a trading update saying it expected trading profit for the six months ending 23 August 2014 to be approximately £1.1bn.
On 22 September 2014, Tesco published a further trading update saying it had “identified an overstatement of its expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs”.
The FCA says it is not suggesting that the Tesco board knew, or could reasonably be expected to have known, that the information contained in that trading statement was false or misleading.
The 29 August announcement resulted in the market price for Tesco shares and bonds being inflated, which continued until the 22 September statement was published.
Those who claim under the compensation scheme will be paid an amount that is equal to the inflated amount for each share or bond.
Thousands due redress
An FCA database shows there were around 10,000 retail and institutional investors who, between them, purchased approximately 320 million shares during the period and who might be eligible for compensation under the scheme.
The compensation scheme will launch by 31 August 2017 and will be administered on Tesco’s behalf by KPMG.
The FCA says that, in light of the SFO deferred prosecution agreement and fine, it will not impose a financial penalty for market abuse.
The regulator’s statement says: “In light of the conduct of Tesco and Tesco Stores in accepting responsibility for market abuse, in agreeing to the first compensation order under section 384 and, in the case of Tesco Stores, for accepting responsibility for false accounting, the FCA will not impose any additional sanction on them for market abuse.”
Tesco group chief executive Dave Lewis says: “Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business. We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”
Shroders puts the pressure on
Schroders has also written to Tesco chairman John Allan today asking the business to pull out of a proposed merger with food wholesaler Booker. Schroders holds a 4.5 per cent stake in Tesco.
The letter, signed by fund manager Nick Kirrage and global stewardship head Jessica Ground, says the high price being paid for Booker makes the “destruction of value” from the acquisition likely.
The letter says Tesco is paying more than 23 times Booker’s peak operating profit, which will “make the creation of shareholder value extremely challenging”
It notes that Tesco board senior independent director Richard Cousins resigned from his post over the proposed acquisition.
The letter says: “This demonstration of integrity delivers a powerful message about his concerns around the merits of the deal. We welcome Richard’s honest and forthright actions and would encourage other FTSE non-executive directors to follow his lead if they see fit.”