Tesco plc (LON:TSCO) will pay a £129mln fine after agreeing a settlement with the Series Fraud Office (SFO) for overstating its profits in 2014.
The supermarket chain said it has reached a principle deferred prosecution agreement with the SFO for providing false accounts of its performance between February and September 2014.
Tesco had originally estimated it had overstated profits by about £250mln but this was later revised up to £326mln.
In a separate agreement with the Financial Conduct Authority (FCA), Tesco will pay £84mln compensation to those who purchased shares and bonds in the company between 29 August and 19 September 2014. The FCA said it was the first time it has used its powers to request a listed company pay compensation for market abuse.
Shareholders will receive 24.5p a share plus interest at 1.25% a year for institutional investors and 4% for retail investors.
“In making its finding, the FCA has expressly stated that it is not suggesting that the Tesco Plc board of directors knew, or could reasonably be expected to have known, that the information contained in that trading statement was false or misleading,” Tesco said in a statement.
Tesco expects to take a one-off charge of £235mln to cover the fine and compensation payment.
The charge will be taken in its 2016-17 full year results, which will be published on 12 April.
Chief executive Dave Lewis said Tesco has fully co-operated in the investigation into its accounting practices over the past two years while “fundamentally transforming our buinsees”.
“We sincerely regret the issues which occurred in 2014 and we are committed to doing everything we can to continue to restore trust in our business and brand."
Tesco has been undergoing a major restructuring to help turn around its business as it comes under pressure from fierce competition between supermarkets as they lose market share to smaller discounters including Aldi and Lidl.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said investors will be pleased that compensation will be paid to those who bought shares in the supermarket at an inflated price, based on false information.
Khalaf said it was a "big slap on the wrist for Tesco" and reflects the seriousness of the offence and its impact on the share price in 2014.
"This kind of accounting error is exceptionally rare in the UK stock market, nonetheless shareholders in all companies will be heartened to learn that in instances where false information is provided to the market, the regulator will see to it that investors are duly compensated."
Shore Capital reiterated a 'hold' rating and target price of 190p, saying it welcomes the news of an agreement between Tesco and UK authorities. The broker said the settlements will hopefully bring an end to "a damaging chapter" for the business so allowing for further focus on the current day job.
"We believe that Dave Lewis engaged in corporate wonders in keeping Tesco stable at the time of this crisis and all shareholders should be thankful for his skills in navigating the business through the most choppy of waters."
Shares in Tesco fell 0.29% to 189.40p in morning trading.