LONDON Britain's biggest retailer Tesco has agreed to pay 214 million pounds ($269 million) in fines and compensation for investors to settle a probe over a 2014 accounting fraud that sparked the biggest crisis in its near 100-year history.
The 85 million pounds in compensation earmarked for investors is the first time that Britain's Financial Conduct Authority (FCA) has enforced such a payout for market abuse.
Tesco will also pay a 129 mln pound fine after an agreement with Britain's Serious Fraud Office (SFO).
"What happened is a huge source of regret to all of us at Tesco but we are a different business now," Chief Executive Dave Lewis, who had to deal with the scandal after taking charge in Sept. 2014, told reporters on Tuesday.
Tesco, which has been rebuilding since the crisis and a price war that hammered the supermarket sector as a whole, said it would take a one-off charge of 235 million pounds in its 2016-17 results, due on April 12.
Shares in Tesco were down 0.1 percent at 190.2 pence at 0950 GMT, also influenced by news on Monday that two big shareholders oppose its proposed 3.7 billion pound takeover of wholesaler Booker.
"The overall exceptional charge of 235 million pounds is worth 2.9 pence to the share price," said Bernstein analyst Bruno Monteyne, who rates Tesco "outperform".
DEFERRED PROSECUTION AGREEMENT
The deferred prosecution agreement (DPA) between the SFO and Tesco's UK subsidiary Tesco Stores Limited enables the firm to avoid a criminal conviction provided it meets certain conditions and pays the fine.
The DPA relates to false accounting by Tesco's UK business between February 2014 and September 2014.
In a parallel deal with the FCA, Tesco agreed to a finding of market abuse in relation to a trading update published on Aug. 29, 2014 which overstated expected first half profits by 250 million pounds, mainly because it booked commercial deals with suppliers too early.
No penalty is being levied by the FCA directly on Tesco.
The DPA does not address whether liability of any sort attaches to Tesco Plc or any employee of Tesco Plc or Tesco Stores Limited.
The profit overstatement, identified three weeks after Lewis took over as CEO, was later raised to 263 million pounds.
Lewis has since worked to simplify Tesco's business and has transformed its relationship with suppliers to ensure there is no repeat of the scandal.
The DPA with Tesco is the second struck by the SFO in three months. In January aero engines maker Rolls-Royce agreed to pay 497 million pounds to settle a lengthy bribery investigation.
Tesco's compensation scheme for investors will cover those who bought shares or bonds for cash between Aug. 29, 2014, and Sept. 19, 2014, giving 24.5 pence per share plus varying rates of interest depending on whether the investor was institutional or retail.
The DPA was the subject of a preliminary court ruling on Monday. The SFO and Tesco will seek final judicial approval for the DPA from the court on April 10.
Lewis told reporters Tesco would contest outstanding civil claims relating to the scandal.
The company is facing a more a claim of more than 100 million pounds from a group of 125 institutional investors filed last October. A source familiar with the lawsuit said claimants were closely examining Tesco's compensation scheme.
The retailer is also facing a claim filed by Manning & Napier, the U.S. fund manager.
"The short period of time covered by both the SFO ruling and the FCA ruling seems to imply very limited opportunity for these cases to extract large compensation," said Bernstein's Monteyne.
For 2016-17 Tesco is forecasting group operating profit before exceptional items of "at least" 1.2 billion pounds, up from 944 million pounds in 2015-16.
($1 = 0.7951 pounds)
(Additional reporting by Kirstin Ridley; Editing by Mark Potter and Keith Weir)