Top investor BlackRock starts dumping shares
Tesco crisis deepens as MPs may probe 'stratospheric' accounting error
The House of Commons business committee could quiz supermarket chiefs after Tesco's 'stratospheric' error of inflating its accounts by £250million, chairman Adrian Bailey MP told BBC Radio 5 Live this morning.
Bailey said it was 'unbelievable' that a company of Tesco's size could get into such a mess, and suggested any inquiry was likely to be extended to cover the wider grocery industry and its relationship with suppliers.
Accountancy watchdog the Financial Reporting Council has also said it is monitoring the situation at Tesco closely, but is powerless to do anything until the supermarket's internal probe into book-keeping mistakes has been completed.
Tesco shares rose 0.03p to 194.93p in early trading today, despite a receiving a fresh blow when American investment giant BlackRock announced to the stock market it was selling a chunk of the 5.03 per cent it holds in Britain’s biggest grocer.
It is understood that BlackRock’s Tesco holding is now around 4.98 per cent, but the firm declined to explain the timing of its disposal.
However, Tesco received support from Sports Direct, which said today it had entered into a 'put option' agreement on a small stake - effectively making a £43million bet that shares in the embattled supermarket chain will rise.
The retailer's top shareholders include legendary investor Warren Buffett, who is believed to have lost a huge sum after the shares almost halved over the past year.
Buffett started increasing his stake in Tesco following its profit warning in January 2012, when other big investors like the UK's star fund manager Neil Woodford bailed out. But Buffett is famed for his investing adage: 'Be fearful when others are greedy and greedy when others are fearful.'
On Monday, more than £1.5billion was wiped off the value of Tesco after it admitted adding £250million to its half-year profit estimate published last month.
Releasing misleading information to the stock market is a serious offence and the potential breach of City rules has seriously damaged Tesco’s reputation. The Financial Reporting Council may fine Tesco and force it to reissue its accounts.
The watchdog said: ‘The FRC is monitoring the situation following Tesco’s announcement closely. It will consider the outcome of the investigation announced by the company and determine whether it should take regulatory action.’
Tesco said it was too early to say whether this was a case of fraud but its legal advisers Freshfields are conducting an investigation alongside accountants Deloitte.
The Financial Conduct Authority is also considering whether to launch a formal investigation, and the Serious Fraud Office is monitoring the situation. Four executives have been forced to stand aside pending the investigation.
The firm would not confirm names, but they are understood to include UK managing director Chris Bush and UK finance director Carl Rogberg, who previously worked together in Thailand. The other two are commercial director John Scouler and sourcing boss Matt Simister.
Bush has been temporarily replaced by Robin Terrell who runs Tesco’s website.
Emptying the trolley: American investment giant BlackRock made a statement to the stock market saying it was selling a chunk of the 5.03 per cent it holds in Tesco
Investors are not only selling down their holdings, some are considering legal action. Los Angeles law firm Glancy Binkow & Goldberg is acting on behalf of investors who indirectly held the stock through a complex scheme known as an American Depositary Receipt (ADR).
The law firm said it was ‘investigating potential claims on behalf of purchasers of the ADRs of Tesco concerning possible violations of federal securities laws’. It added: ‘The investigation focuses on certain statements issued by the company concerning Tesco’s operations and financial performance.’
The development will heap further pressure on embattled Tesco chairman Sir Richard Broadbent, who is in charge of ensuring the firm adheres to tough City rules and regulations.
He has been accused of ‘falling asleep at the wheel’ after investors were left reeling from the accounting scandal that triggered the firm’s third profit warning and the suspension of the four executives. In a week of woe, Tesco’s shares fell lower than 200p for the first time in 11 years on Tuesday and remain below that level now.
Shares in the beleaguered supermarket giant have almost halved over the past 12 months, and the company's sales have also fallen at the fastest rate in more than two decades.
For the 12 weeks ending on September 14, sales were down 4.5 per cent, leaving its market share at 28.8 per cent, according to latest Kantar WorldPanel industry figures. This is down from 30.2 per cent seen a year ago, meaning shoppers spent more than £332million less than in the same three-month period last year.
Tesco was also forced to draft in new finance chief Alan Stewart two months early to tackle the crisis.
In a further blow, rating agency Standard & Poor’s has put Tesco on negative watch, hot on the heels of rivals Fitch and Moody’s.
Source: thisismoney.co.uk
