Key Investor Empties Trolley Of Tesco Shares

One of Tesco (Xetra: 852647 - news) 's most prominent institutional shareholders has ditched its remaining stake in the company and cast doubt on the retailer's recovery prospects under its new chief executive.

Sky News has learnt that David Herro, a fund manager at Chicago-based Harris Associates, sold just under 1% of Tesco - worth around £140m at Friday's closing share price - in the days leading up to the company's interim results announcement this week.

Mr Herro has been a vocal steward of Tesco shares during the last two years, initially supporting the strategy of Philip Clarke before his sacking as chief executive in July.

In August, he changed his stance, offloading two-thirds of his firm's stake in Britain's biggest retailer while criticising the performance of its chairman.

The Harris Associates fund manager joins Warren Buffett, the world's most famous investor, in slashing his holding in Tesco.

Mr Buffett recently called his investment in Tesco "a mistake", underscoring the huge task facing Dave Lewis as he bids to rebuild investor confidence in the company.

Speaking to Sky News, Mr Herro - once Tesco's seventh-largest investor - confirmed the sale of Harris's remaining shares, saying: "There is a big question about how they will fund their recovery given the decline in operating profit and whether they will sell assets just as they are getting into the dangerous territory of being a distressed seller."

He said he would continue to monitor the situation but added that nothing that had been announced by Tesco this week would prompt him to reinvest at this point.

Tesco's shares are trading at their lowest level in more than a decade as investors take fright at the scale of the strategic and financial challenges confronting it.

Announcing a near-92% fall in half-year statutory pre-tax profits on Thursday, Mr Lewis said he would not be formally announcing a new strategy for the company.

He opted not to dispel City speculation about a potential rights issue, saying that while the company was not "currently" working on a capital-raising, he would "never say never".

Prospective buyers are circling assets including Tesco's valuable Asian retail operations and its data marketing division, Dunnhumby, although no formal sale talks are underway.

Tesco said that it had revised upward a black hole in its half-year profits caused by an accounting mis-statement to £263m and said the issue pre-dated this financial year.

Sir Richard Broadbent, its under-fire chairman, said he would step down, while Tesco is withholding termination payments to Mr Clarke and the former chief financial officer pending the outcome of a probe by the Financial Conduct Authority.

The turmoil has forced Tesco to shore up its financial position by turning to five banks to lend the company £1bn each in order to head off the prospect of lenders calling in existing loans.

Insiders said that the syndicate included Barclays (LSE: BARC.L - news) , BNP Paribas (Xetra: 887771 - news) , Deutsche Bank (Xetra: 514000 - news) , Goldman Sachs (NYSE: GS-PB - news) and HSBC, although Tesco refused to comment.