Profits Crisis Sparks New Tesco Legal Battle

The challenge facing Tesco (Xetra: 852647 - news) 's new leadership team will be underlined on Tuesday with the emergence of another legal claim from shareholders over the retailer's £263m profit mis-statement.

Sky News understands that a leading litigation specialist has been appointed to co-ordinate an action from a group of Tesco investors who will demand compensation following the slump in its share price last autumn.

A public statement is expected to be made with the intention of soliciting interest from the supermarket giant's investors, echoing a similar case being prepared by Stewart's Law, a top City firm.

One source said that a number of blue-chip investors had expressed an interest in participating.

If they proceed, they are expected to claim compensation for shareholders on the basis that Tesco allegedly breached the Financial Services and Markets Act by over-stating its profits.

Another case brought by a Texan pension fund which had invested in Tesco's US depositary shares became public last October.

The latest claim, which is expected to take months to assemble, will again underline the scale of the task facing Dave Lewis, Tesco's chief executive, and John Allan, who is about to take over as the company's chairman.

Although recent grocery industry data has hinted at the beginnings of a revival for Tesco, the commercial and reputational crises triggered by its poor trading performance and profits over-statement are likely to take years to rectify.

Tesco is engaged in a huge redundancy programme to cut several thousand jobs with the aim of saving hundreds of millions of pounds annually.

The company's £263m profit over-statement occurred because of inaccurate booking of revenue from suppliers, into which the Serious Fraud Office has launched a formal criminal investigation.

The Groceries Code Adjudicator and the Financial Reporting Council are undertaking separate inquiries, while the Financial Conduct Authority ceased its own probe when the SFO became involved.

In addition to the redundancy programme, Mr Lewis has outlined proposals to relocate Tesco's head office, close dozens of stores and terminate its defined benefit pension scheme in an effort to save costs.

He also plans to sell a stake in Dunnhumby, its customer loyalty arm, and has announced a long-term price-cutting initiative across hundreds of core grocery items.

The debate over Tesco's decline was reignited earlier this year when Sir Terry Leahy, the former chief executive, blamed his successor, Philip Clarke, for "a failure of leadership".

A series of profit warnings last year led to Mr Clarke being sacked, but analysts pointed out that some of Tesco's least successful initiatives in recent years, including its expansion into the US and China, had taken place during Sir Terry's tenure.

In January, Tesco said it would pay more than £2m in "liquidated damages" to Mr Clarke and Laurie McIlwee, its former finance director, after concluding that there was no legal basis for withholding the payments.

Tesco declined to comment.