Tesco fined £129m by SFO; shareholders rebel against Booker deal

Tesco was in focus on Tuesday as it agreed to pay a £129m fine to the Serious Fraud Office and following a report that two of its largest shareholders were advising against its deal with Booker.

As well as the fine to the SFO, Tesco agreed to a finding of "market abuse" by the Financial Conduct Authority for overstating its expected profits in a trading update in August 2014.

Following months of talks with the Serious Fraud Office, the supermarket giant reached a deferred prosecution agreement, which means it will not be prosecuted as long as it meets certain requirements.

Tesco has agreed to pay compensation to investors who purchased shares and bonds in the company on or after the 29 August 2014 and who still held those securities when the statement was corrected on 22 September 2014. The compensation scheme is expected to total around £85m plus interest.

FCA chief executive Andrew Bailey said: "Dissemination of information that gives a false or misleading impression as to traded securities harms the integrity of our markets. The FCA is committed to UK markets being fair, transparent and thus competitive.

"Tesco and its board are doing the right thing here, taking appropriate responsibility and agreeing to rectify the consequences of the misconduct. They have cooperated fully with us and this sets a good example for the market and so is a good outcome for Tesco and investors.”

Meanwhile, Tesco chief executive Dave Lewis said: "Over the last two and a half years, we have fully cooperated with this investigation into historic accounting practices, while at the same time fundamentally transforming our business. We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand.”

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: "This kind of accounting error is exceptionally rare in the UK stock market, nonetheless shareholders in all companies will be heartened to learn that in instances where false information is provided to the market, the regulator will see to it that investors are duly compensated."

Tesco was also in the spotlight following a report that two of the largest shareholders in the supermarket retailer were advising against its £3.7bn takeover of wholesaler Booker.

According to the Financial Times, Schroders and Artisan - who own 9% of the stock between them - argued that the price of the deal was too high and completing it would be too distracting.

Neil Wilson, senior market analyst at ETX Capital, said the deal with Booker does look pricey. "The 24% premium paid for Booker scrubs the lion’s share of value from the deal. The big risk is that Tesco will take its eye off the ball and its turnaround will suffer for precious little by way of value. Hubristic takeover deals usually mark a market top – let’s hope it’s not one of those.”

Olivetree Financial said: "Tesco already knew there is dissent over the strategic shift that this deal brings – it faced criticism of the move from within its own board ahead of making the transaction public. Since the transaction was announced, the top 20 Tesco shareholders, who speak for 60% of the company, have been net buyers of 5.7% of the company.

"The management have already shown their firm commitment to the transaction (and have affirmed it this morning), with it being so rare to see a Class 1 transaction prove any impediment to UK M&A, this really shouldn’t move the implied probability of completion very much. However – a number of Booker shareholders were hopeful that over the lifetime of the deal Booker shares would outperform to a degree which forced Tesco to improve the terms of the deal – with such dissent from acquirer shareholders it would seem that it is the probability of this development which will have been eroded more than anything."

At 0839 BST, Tesco shares were flat at 190p, while Booker shares were off 2.1% to 195.80p.