Tesco shareholders 'to sue over overstated profits'

Tesco is facing a multi-billion pound lawsuit from its shareholders over the £263 million accounting irregularities that emerged last year.

Acting on behalf of the shareholders, US law firm Scott+Scott says that Tesco's overstatement of profits last September breached the Financial Services and Markets Act and caused a "permanent destruction of value to shareholders".

Scott+Scott has already launched a lawsuit in the US, and says it is now "in active discussions" with institutional shareholders in the UK and Europe about filing a claim on a no win, no fee basis.

"International institutions asked us to find a way to bring a claim in the UK which they can join," says David Scott, managing partner at Scott+Scott, in a statement.

"I am delighted to be part of this action which, given the strength of the case, is already attracting a lot of interest from shareholders in the UK and Europe."

The row relates to an announcement by Tesco last September that it had overstated its half-year profit guidance by £250 million - later revised to £263 million.

The company's share price fell to a 14-year low as a result, and investors say that the company is now worth materially less than it would otherwise have been. The claim is expected to be in the region of 50-70p per share, and Tesco has more than eight billion shares listed.

Scott+Scott has created a group called Tesco Shareholder Claims Limited (TSCL) to unite shareholders in the case.

"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," says TSCL chairman John Bradley. "We look forward to bringing this claim to court."

The Serious Fraud Office is already carrying out an investigation into the accounting irregularities, which came about because of inaccurate booking of revenue from suppliers. The Financial Reporting Council and the Groceries Code Adjudicator are also carrying out enquiries of their own, into the company's accounting practices and relationship with its suppliers respectively.

A number of executives have left the company since the mis-statement was revealed, most recently director Patrick Cescau, who announced his resignation on Monday.

New chief executive Dave Lewis has embarked on a massive redundancy programme and announced the closure of dozens of stores in an effort to turn the company around. He is also reorganising the head office and has promised to cut costs and sell assets such as land, in order to repair the company's finances and fund lower prices.

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