Tesco Investor Compensation and Booker Opposition

Tesco (TSCO) have agreed a Deferred Prosecution Agreement with the Serious Fraud Office (SFO) over the overstatement of profits which came to light in 2014. Tesco has also conceded to a finding of market abuse by the Financial Conduct Authority (FCA) in relation to a trading statement issued in August 2014. As a result the company has agreed to establish a compensation scheme for purchasers of Tesco’s ordinary shares or bonds between the 29th August 2014 and 19th September 2014 (inclusive). Compensation will be 24.5p per share plus interest. So any investors in Tesco should check whether they will be eligible.

Note that the overstatement of profits went back several years so this offer may not let Tesco off the hook completely as law suits may still be pursued by disgruntled investors.

The SFO is still pursuing criminal proceedings in relation to individual persons involved in the matter but so far as the company is concerned that seems to conclude the matter as regards regulatory legal action. Tesco will take an exceptional charge of £235m for the compensation and other associated costs (that’s more than the profits they declared last year but only a small fraction of what they used to report annually).

The Financial Times reported this morning that there is opposition from major shareholders Schroders and Artisan to the proposed takeover of Booker by Tesco. Together they hold more than 9% of the company’s shares and Schroders have written to the Chairman urging him to withdraw the bid. Apparently the high price being paid for Booker is the concern.

Comment: the prospective p/e of 25 for Booker certainly makes it look a high price for what is basically a low margin food wholesaler even if Booker has grown profits rapidly in the last few years. There are also clear synergies between the businesses that can be exploited by Tesco. So this is not a clear cut matter it seems. If any readers have any views on it, please add your comments.

Roger Lawson

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