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Coke defends on antitrust
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July 22, 1999: 4:26 p.m. ET
Beverage maker says it is cooperating with EU probe; bottler deal 'threatened'
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NEW YORK (CNNfn) - Coca-Cola Co. launched an attempt Thursday to defend its troubled European operations against antitrust allegations, just weeks after a health scare in the region cost the world's largest soft drinks producer millions of dollars.
The Atlanta-based firm's CEO, Douglas Ivester, told an analysts' meeting in New York that an inquiry launched by the European Commission was "a pretty routine thing."
Investors, however, sold off shares of the company's bottling affiliate in London, indicating their concern that regulators might block a pending merger.
EU competition officials launched dawn raids this week on Coca-Cola offices in four countries and also contacted its leading bottlers and retailers.
Officials were responding to allegations that Coca-Cola abused its dominant market position in Europe by offering unfair incentives to retailers.
EU inspectors confiscated documents from Coca-Cola (KO) offices in Germany, Austria and Denmark, and also raided the U.K, headquarters of one of Coke's regional bottlers, Coca-Cola Beverages (CCB).
Wave of activity
Ivester said the EU's action was part of "a wave of activity across Europe involving other companies" as the commission seeks to target larger companies while leaving smaller investigations to national regulators. "It's not something I am very exercised about," said Ivester. "It's not the first time, and it won't be the last time."
The company, which controls about half of Europe's soft-drink industry, denied it has broken European antitrust rules and said it is cooperating with the inquiry.
The EU suspects Atlanta-based Coca-Cola of engaging in anti-competitive practices by granting what it called "very significant promotional rebates" to retailers. Competition watchdogs say Coca-Cola offered retailers incentives to increase sales and stop selling rival drinks.
Such practices are banned in the European Union. Violators can incur a penalty of up to 10 percent of sales, though the maximum penalty has never been imposed.
Competition lawyers confirmed Ivester's assessment that the commission is focusing on larger cases. "The basic policy is to identify high-profile candidates," Chris Bright at Clifford Chance in London told CNNfn.
Last week the commission fined British Airways $7.1 million for abusing its dominant position in the U.K. airline industry.
Karel Van Miert, the EU's acting competition commissioner, said the probe focuses on the European market only, and that the EU is not acting in concert with U.S. authorities.
He would not comment on whether the inspectors had acted after receiving complaints about Coca-Cola, though he said, "We have had indications that something may be going on."
Coke rival Pepsi is known to have lodged complaints about Coca-Cola's practices in the past year.
"European consumers are well-served by the commission's action in this case," Pepsi Cola Europe President Wayne Mailloux said. "This demonstrates that the (commission) is committed to ensuring a level playing field, as well as more choice and fair pricing for consumers."
Merger threatened
London-listed Coca-Cola Beverages (CCB) , which focuses on the eastern and central European markets, saw its stock slide more than 10 percent after news of the raids was released. Its shares closed down 13 pence at 116.60 pence.
Analysts suspect that investigation may threaten the planned $3 billion stock swap between CCB and Athens-based Hellenic Bottling, "The market interprets this [probe] as an attack upon Coca-Cola per se as a system," said Kingsmill Bond, beverage analyst at Deutsche BT in London. "This would indicate that the commission is more likely to seek to block the merger," he told CNNfn.
Coca-Cola distributes its products through so-called "anchor bottlers" that enjoy special commercial relationships. CCB and Hellenic are both anchor bottlers.
In a related development, Coca-Cola Nordic Beverages, the anchor in Scandinavia, acknowledged Thursday that it offered certain incentives to retailers, but insisted it had done nothing illegal.
The company, set up as a joint venture between Danish brewer Carlsberg and Coca-Cola in 1997, said its periodic rebate campaigns were "totally in keeping with normal practice."
The latest public flap
This week's raids are just the latest public embarrassment for Coke. Last month, the company was forced to pull its products from shelves across Europe after scores of children in Belgium and France fell ill after drinking Coke products.
After initial foot-dragging, Coca-Cola issued a public apology to Belgian consumers for the contamination scare, even as its own scientists insisted the level of contaminant never posed a serious health risk. Nonetheless, Coke acknowledged the scandal had hurt its latest quarterly earnings.
Nor is this the first time Coca-Cola has come to bureaucratic blows with EU competition officials. The company was forced recently to drastically scale back its plans to buy the non-U.S. assets of Cadbury-Schweppes after its failure to notify Van Miert's office prompted regulators to object. The deal would have added brands such as Seven-Up and Dr Pepper to its core Coke products.
Shares of Coca-Cola, a component of the Dow Jones industrial average, were unchanged at 62-5/8 Thursday afternoon in New York.
-- from staff and wire reports
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