Buffett Trims Stake In Tesco After Admitting It A ‘Huge Mistake’

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Warren Buffett, the legendary investor, is pulling out of Tesco (OTCPK:TSCDY), the troubled retailer, after admitting investing in Britain’s biggest supermarket chain was a huge mistake.

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Just a fortnight ago, the Sage of Omaha called his investment in the world’s second-biggest retailer was a “huge mistake”.

Buffett’s holdings in Tesco

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Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) has owned a stake in Tesco since March 2006, when Berkshire bought shares for $328.7 million. By 2012, the holding had reached 5.08 percent, worth more than 1 billion pounds ($1.6 billion).

Mr. Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) investment group began trading in the Britain’s biggest retailer last autumn, buying $425 million of stock and an option to buy $125 million more. Later it sold off around $35 million of stock to trim its losses following a nosedive in the share price that wiped away hundreds of millions of dollars of value. However, far from being discouraged, Berkshire then reinvested in even more shares, making it the troubled retailer’s third biggest shareholder, with a stake of 3.7% at the end of 2013.

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Trims holdings in Tesco

Tesco’s recent shakedown came as the company issued its third profit warning over the course of three months. Last month, Tesco’s new CEO, Dave Lewis disclosed that the retailer found an overstatement of the company’s estimated profits for the period of 1H2014. The retailer had released guidance on H1 earnings on August 29. The retailer’s estimate of 1.1 billion pounds in EBIT is apparently 250 million pounds ($408.5 million) higher than it should have been.

In his interview to CNBC earlier this month, Mr. Buffett admitted that he made a “huge mistake” with his investment. In its regulatory filing, Tesco announced today that Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) had sold down its stake on Monday to less than 3%.

The retailer’s £250 million accounting error relates to shortfall that was found in Tesco’s commercial income, with the retailer booking income from deals with suppliers early at the same time as pushing back costs. Interestingly, Buffett made the share disposal on the same day Tesco suspended a further three executives over the accounting error.

 

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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2 COMMENTS

  1. Warren Buffett should consider donating a miniscule fraction of his
    wealth to the Artificially Generated Stampede Awareness Foundation.

    People have a fundamental right to know…

    that if they’re in a large, confined crowd (stadium, ballpark, etc.) and
    receive an emergency evacuation order and/or panic-inducing information
    from their personal cell phone…

    it’s almost certainly a hoax designed to create an artificially generated stampede.

    The United States government and major sports organizations won’t touch this asymmetric, national security issue. It’s simply a matter of public safety and common sense.

  2. Warren Buffett should consider donating a miniscule fraction of his
    wealth to the Artificially Generated Stampede Awareness Foundation.

    People have a fundamental right to know…

    that if they’re in a large, confined crowd (stadium, ballpark, etc.) and
    receive an emergency evacuation order and/or panic-inducing information
    from their personal cell phone…

    it’s almost certainly a hoax designed to create an artificially generated stampede.

    The United States government and major sports organizations won’t touch
    this asymmetric, national security issue. It’s simply a matter of
    public safety and common sense.

Comments are closed.