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.
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
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.
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.