The company owes 10,000 shareholders compensation after overstating its expected profits
Are you one of the 10,000 investors who bought or sold shares in Tesco during the summer of 2014? If so, you could be due a slice of an £85m compensation package from the supermarket giant after it was found guilty by the financial regulator of giving a “false and misleading impression” to its shareholders.
What happened? In August 29, 2014, Tesco published a trading statement in which it said its profits for the six months to August 23 that year would be about £1.1bn.
This was based on false figures provided by the company’s subsidiary, Tesco Stores.
Nearly a month later — on September 22 — a second statement was put out by the supermarket in which it announced that it had “identified an overstatement of [its] expected profit for the half year, principally due to the accelerated recognition of commercial income and delayed accrual of costs”.
Last week, the regulator, the Financial Conduct Authority, announced: “Tesco knew or could reasonably have been expected to know that the information in the August 29, 2014 announcement was false or misleading.”
Who is being compensated? Tesco said it has reached an agreement with the regulator to pay £85m in compensation to shareholders and bondholders who invested in the supermarket chain between August 29 and September 19, 2014.
Investors will not be able to claim compensation if they merely held Tesco shares during this period.
Only those who actively bought or sold the shares during this period will qualify.
Why only that time period? The timing is complicated (predictably). It is related to about 10,000 “net” investors having bought shares or bonds in the company at a price inflated by the false financial results that had been released. “Net” shareholders are those who bought more Tesco ordinary shares than they sold during the period.
They will be compensated only for the number of net shares they held — that is, the difference between the number they sold and the number they bought. The false accounting was corrected on September 22. Over the period from August 29 to September 19, the shares hovered around 230p but dropped to 203p on September 22, when the false accounting was identified and corrected by Tesco in a public statement.
Last week the shares were trading at 186p.
How will investors be compensated? Retail investors — individual shareholders — will receive 24.5p per net share they held during that period, plus 4% interest on the sum owed.
Interest will be payable up to four months after the opening of the compensation scheme.
When will the scheme start? Later this year. The scheme will be devised and overseen by the accountancy firm KPMG, which expects to have completed preparations by the end of August this year. At that point, Tesco will publicise more information about how to claim compensation.
Those seeking to do so will have to provide evidence of share purchases and sales during the relevant period. You may need to contact your broker to get these records.
How long will the scheme be open for? Once the scheme opens, investors will have six months in which to make a claim. However, interest on anything owed will be paid only from when the Tesco shares were bought to four months after the scheme opens — so be sure to claim sooner rather than later.