Freshfields Bruckhaus Deringer and Stewarts Law are gearing up for a shareholder battle brought against Tesco following its first-half £250m profit overstatement in September this year.
Led by Stewarts Law partner Sean Upson, the firm has secured third-party funding for a potential claim brought by shareholders in order to claim compensation against the supermarket giant. The firm argues that Tesco made misleading statements and omissions to the market in relation to its profits resulting in negative impacts on shareholders’ investments.
It is now aiming to sign up a raft of the supermarket’s largest institutional investors and has secured a multi-million pound budget from Bentham Europe to bring the case.
Stewarts has instructed One Essex Court’s Stephen Auld QC to bring the potential claim and would face off against longstanding Tesco adviser Freshfields. Litigation partners Ian Terry and Andrew Austin and global investigations co-head Ali Sallaway have already been drafted in to investigate the supermarket and determine whether any rules were broken.
The firm has been advising the company since September, when CEO Dave Lewis turned to Freshfields and Deloitte for an internal investigation over the profit error, which meant first half profits were almost a quarter lower than expected (22 September 2014).
The following month the Financial Conduct Authority (FCA) launched an investigation into the supermarket. However the FCA called time on the probe when the Serious Fraud Office launched a criminal probe into accounting practices at the supermarket later that month (30 October 2014).
So far the investigation has resulted in the suspension of eight senior managers while the investigation continues. In October the supermarket further downgraded its expected profits for the current financial year significantly and reported a fall of 92 per cent in pre-tax profits.
Freshfields is one of Tesco’s first port of call for advice on regulatory investigations. In 2012, the firm secured a partial victory for Tesco in a long-running Office of Fair Trading case relating to the price-fixing of dairy products. Antitrust partner Deirdre Trapp led advice to Tesco on the case (21 December 2012).
The firm is understood to be bracing itself for the new litigation, though with no claim filed there is currently nothing to respond to.
The case would be the second high-profile group litigation brought by Stewarts Law against a major institution, following on from its current rights-issue action against the Royal Bank of Scotland (4 April 2013).
Stewarts Law represents over 300 institutional investors and pensions funds bringing a £1.4bn claim worth against the bank over a 2008 £12bn rights issue investors claim was misleading and contained “material ommissions” (17 November 2014).