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Tesco woes continue with fresh litigation claim

by: Anna Federova
  • 24/03/2015
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Tesco woes continue with fresh litigation claim
Another group of shareholders in Tesco is preparing legal action against the food retailer following its accounting blunder late last year.

A group of shareholders has employed a litigation specialist to co-ordinate a claim for compensation following the slump in the supermarket’s shares late last year.

The food retailer overstated its profits by £263m in a major accounting error, which sparked a raft of investigations into the way the business is run, as well as senior departures.

The supermarket is already being investigated by the Financial Reporting Council (FRC) and the Serious Fraud Office (SFO).

The latest claim, following one made by a Texan pension fund with holdings in Tesco’s US depositary shares last October, is being made on the basis Tesco breached the Financial Services and Markets Act by overstating its profits.

The group, Tesco Shareholder Claims, said it “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.”

“TSC expects the claim to be in the region of 50p-70p per share,” it added.

Shareholders in Tesco suffered a significant hit on the news of its accounting error, as the share price fell by 15%. Over the past 12 months shares are down 15%, and are 44% lower over five years, though year to date the supermarket has bounced back up 30%.

For some fund managers, however, the drop in the share price looked like an attractive entry point as the supermarket embarks on a cost-cutting programme to improve its financial position.

The cost-cutting drive has already seen the supermarket cancel its full-year dividend, announce store closures and appoint a new UK CEO in a bid to reverse its fortunes.

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