Photographer: Chris Ratcliffe/Bloomberg

Tesco to Pay $269 Million Over U.K. Accounting Scandal

Updated on
  • Agreement sees Tesco avoid prosecution by Serious Fraud Office
  • Grocer faces investor opposition to bid for wholesaler Booker

Tesco Plc agreed to pay 214 million pounds ($269 million) to resolve regulatory probes into a 2014 accounting scandal that prompted a boardroom house-cleaning and an overhaul of the U.K. grocer’s supplier relations.

Tesco said its U.K. unit will pay 129 million pounds under a deferred prosecution agreement with the Serious Fraud Office, subject to court approval, and 85 million pounds to compensate investors under a separate settlement with the Financial Conduct Authority.

The agreements come as Tesco faces growing opposition from shareholders to its 3.7 billion-pound bid for U.K. wholesaler Booker Group Plc, which supplies restaurants and operates convenience stores. Schroders Plc and Artisan Partners Asset Management Inc., which together own 9 percent of Tesco, said this week that they want the grocer to focus on its recovery from the accounting scandal rather than striking out in a new direction.

Tesco said it expects to record a one-time charge of 235 million pounds to cover the penalty, compensation and related costs. Investors who bought shares between Aug. 29 and Sept. 19, 2014, will be eligible for compensation of 24.5 pence a share, plus interest.

Tesco shares were down 0.4 percent in early trading in London. Booker fell as much as 3.2 percent to 193.6 pence, about 6 percent below the value of Tesco’s offer.

Profit Overstatement

Tesco announced in September 2014 that it had overstated profits by 263 million pounds, a figure that was increased to 326 million pounds following an independent audit. The FCA has said it’s 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.

Tesco and the SFO will seek final court approval for the regulatory deals on April 10.

Chief Executive Officer Dave Lewis said Tesco would defend itself against two shareholder lawsuits. The outstanding cases relate to time periods outside the 2014 time window identified by the FCA.

“The FCA have been really very clear,” Lewis said on a call. “There is no accusation that anybody at Plc level knew or should have known what was in the misleading statement and that will be significant in any civil litigation.”

Booker Deal

Tesco is the second high-profile British company to be offered a deferred prosecution agreement in a matter of months. Jet engine maker Rolls-Royce Holdings Plc agreed to pay 510 million pounds to U.K. prosecutors under such an arrangement in January to resolve a bribery probe.

Former Chairman Richard Broadbent stepped down from that post in October 2014, saying the accounting irregularities were a “matter of profound regret.”

After the scandal, Tesco moved to reduce the number of suppliers it works with, saying that would allow it to give remaining providers better deals. Lewis, who took over as CEO just before the accounting problems emerged, has put restoring the retailer’s reputation at the heart of his turnaround plans.

Lewis rebuffed suggestions that Tesco had not done enough to engage with shareholders over the Booker deal, which it announced in January. Schroders and Artisan were invited to air their concerns.

“We have done everything we can to share with them why this is such a compelling proposition for Tesco,” Lewis said. “We’re absolutely, completely committed to the deal.”

— With assistance by David Hellier

(Updates with details of settlement in 10th through 12th paragraphs.)
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