Tesco Plc, Imperial Tobacco Group Plc and 11 other companies were accused of coordinating cigarette prices between 2000 and 2003 in the U.K. antitrust regulator's first formal probe of tobacco sales, Bloomberg reported.
The Office of Fair Trading said today it found evidence of 11 retailers and two manufacturers linking the price of tobacco brands made by competing companies. The regulator in London is also examining whether Imperial, Japan Tobacco Inc.'s Gallaher unit and five retailers shared information on prices.
The case is the second in the last six months involving U.K. retailers. In December, supermarkets including Wal-Mart Stores Inc.'s Asda and J Sainsbury Plc agreed to pay fines of as much as 116 million pounds ($228.5 million) for fixing milk prices in 2002 and 2003 after an Office of Fair Trading probe.
``The law is very clear about this and the retailers have just had their knuckles rapped over milk,'' said Richard Perks, an analyst at Mintel International in London. ``Price fixing is illegal. If they've done that then they've just been incredibly stupid.''
Imperial Tobacco, Europe's second-largest publicly traded cigarette maker, said in a statement that it hasn't done anything to harm consumers. The Bristol, England-based company said it takes compliance with competition law ``very seriously,'' and ``rejects any suggestion that it has acted in any way contrary to the interests of consumers.''
Royal Dutch Shell Plc, Somerfield Ltd, Sainsbury, Co-operative Group Ltd., William Morrison Supermarkets Plc, Safeway Plc, First Quench Retailing Ltd., T& S Stores Plc and TM Retail Ltd. were also named by the OFT in the case. Safeway is now owned by Morrison. First Quench owned the Thresher liquor store chain in the period under investigation and convenience store operator T& S has since been bought by Tesco.
Sainsbury said it expects ``total immunity from any potential resulting fines.'' It declined to comment further. The company that first cooperates with regulators in antitrust cases often receives immunity from fines.
Imperial, whose brands include Davidoff, Embassy and Rizla, accounts for almost half the British cigarette market, where prices are among the highest in Europe. A pack of cigarettes costs 5.55 pounds ($11.20) on average in the U.K., triple the Spanish price and almost two-thirds more than in Belgium, the Tobacco Manufacturers' Association said last month. Taxes make up about fourth-fifths of the price.
The case involves claims that the companies coordinated, rather than fixed prices, said OFT Spokeswoman Corinne Gladstone. The companies face a fine of as much as 10 percent of their global revenue in the market being investigated if found guilty.
``A manufacturer would ask the retailer to sell his brand X at the same price or at a coordinated price below his competitor's brand Y,'' Gladstone said. ``There were also instances where manufacturers informed retailers about future pricing in the knowledge that retailers would likely tell rival manufacturers.''
The regulator said it may, where applicable, seek to attribute liability to parent companies. The companies can now file arguments refuting the OFT's so-called statement of objections, which lays out the regulator's findings.
Japan Tobacco, which acquired Gallaher last year for $15.4 billion, said it has been fully cooperating with the OFT.
``While the matter is still under review, an allowance of undisclosed amount, based on the company's current assumptions, has been booked as a liability in the purchase price allocation related to JT's acquisition of Gallaher,'' Japan Tobacco said in an e-mailed statement. Gallaher's cigarette brands include Silk Cut and Benson & Hedges.
Tesco spokesman Trevor Datson said the supermarket chain ``does not believe Tesco has acted in a way that has harmed consumers and we will make this clear to the OFT when we see details of their allegations.''
Asda said in an e-mail that it will be ``studying in detail'' the OFT's statement, and declined to comment further. Co-op and Morrison said they would cooperate with the probe.
Thresher didn't have a comment immediately. Messages left for Shell, Somerfield and TM Retail weren't immediately returned.
``All this does is reflect the supermarkets' power in the market,'' said Mike Pullen, head of European competition at London-based law firm DLA Piper. ``Because of their dominance they are going to keep bumping up against the competition regulators.''
Two days ago the OFT made an unprecedented apology and financial settlement to Morrison over a press release about the dairy cartel. In exchange for 100,000 pounds, the supermarket will drop a libel action and judicial review against the regulator.