Tesco faces potential multi-billion pound UK shareholder claim

By Erin Smith

Published: 24 March, 2015

Tesco is facing a potential multi-billion pound class action lawsuit in the UK by a not-for-profit organisation representing its shareholders, in relation to the profit overstatement it announced last year.

Tesco is facing a potential multi-billion class action lawsuit in the UK by a not-for-profit organisation representing its shareholders, in relation to the profit overstatement it announced last year.

Tesco Shareholder Claims Limited (TSC), a not-for-profit group backed by US law firm Scott +Scott LLP firm, today announced its will seek to bring action against Tesco PLC in the UK on behalf of its institutional shareholders as a result of Tesco's announcement on 22 September 2014 that it "materially" overstated its profits.

A statement by the TSC said: "This overstatement caused a permanent destruction of value to shareholders and the Group will seek to bring a claim under section 90A of the Financial Services and Markets Act 2000."

US litigation firm Scott+ Scott LLP, which filed a similar lawsuit in the US in October, is funding the TSC group, who will be represented by McGuire Woods LLP in the UK.

The class action lawsuit is open to only institutional shareholders which bought shares in Tesco prior to the misstatement of profits announcement and the following month.

TSC is currently in discussions with institutions in the UK, Europe and the US about joining the claim on a "no win, no fee basis."

"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. We look forward to bringing this claim to court," said John Bradley, chairman of the group.

Tesco currently has over 8 billion shares listed and TSC expects that the claim, if won, would be in "the region of 50p-70p per share." That could equate to £5.6 billion, but most likely all claimants will not file so the claim filed could be potentially lower.

On 22 September 2014 Tesco announced its profits had been misstated to the tune of £250 million. It was later revealed that the actual figure was £263 million. The announcement resulted in "a sharp decline in the value of the company and driving the share price down to a 14 year low of 164.8p. 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," according to the TSC statement.

Tesco is currently under investigation by the Serious Fraud Office.

Tesco declined to comment.

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