Tesco to settle US lawsuit for $12m over accounting scandal

Tesco has agreed to pay $12m (£8m) to settle a US lawsuit over the accounting scandal last year, which led to significant weakness in the company’s share price.

US owners of American Depositary Receipts (ADRs), instruments which allow investors across the Atlantic to hold shares in a non-US company, brought the class action lawsuit against the supermarket chain after suffering as a result of Tesco’s shares losing more than a quarter of their value in a fortnight (1).

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. ADRs account for about 2% of Tesco’s market capitalisation. Tesco later raised the estimated overstatement of profits to £263m (2).

Under the agreement, Tesco will pay $12 million, but make no admission of liability, the company said in a statement on Thursday. The settlement with holders of the company’s ADRs is subject to confirmation by a federal court in New York (3).

“The agreement, if confirmed, will settle one of two claims before US courts arising out of the commercial income overstatement,” Tesco said.

The second claim is being brought in Ohio by holders of ADRs, which Tesco says make up less than 0.2pc of the company’s total shares (1)