Business

Tesco settles US lawsuit over profit overstatement

Tesco Image copyright Getty Images

Tesco will pay $12m (£8m) to settle legal action by US shareholders which claimed that accounting irregularities inflated the supermarket's share price.

The lawsuit alleged that Tesco's overstatement of its profits guidance, revealed last year, breached certain US securities laws.

The cash settlement was disclosed on Wednesday in the US District Court in Manhattan and requires court approval.

Tesco, the UK's largest supermarket group, has not admitted any liability.

The retailer said in September 2014 it had overstated its profit guidance for the first half of the year by £250m after incorrectly booking payments from suppliers.

The announcement sent Tesco's New York-listed shares down by 15% the following day. American Depositary Receipts (ADRs) account for about 2% of Tesco shares.

Tesco later raised the estimated overstatement of profits to £263m.

The incident led to an investigation by the Serious Fraud Office and other regulators.

The legal action claimed that Tesco had misled investors about its financial health.

Kim Miller, a partner at Kahn Swick & Foti, called the settlement an "outstanding recovery".

The average recovery will be 37 cents per ADR before fees and expenses of about 30%, court papers showed.

Tesco shares, which are down almost 10% this year, rose 1.5% to 171.1p in morning trading on Thursday.

Analysts at Shore Capital maintained their "hold" recommendation on the stock.

"We believe that chief executive Dave Lewis and his team deserve considerable credit for the way in which they have stabilised an organisation in a state of chaos - the settlement of class actions in the USA merely serving to remind us of the challenges that management have faced over the last year," they said in a note.

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