$Stock*Shop*Charts*News*Option$

[Stock Lobster]

>>P&G girds for Europe fines

Consumer goods firm faces price-fixing questions

Business Courier of Cincinnati - by Jon Newberry Staff Reporter
Friday, February 12, 2010 | Modified: Monday, February 15, 2010, 3:33am EST

Despite setting aside a quarter billion dollars in reserves last quarter for potential fines related to two European price-fixing probes, officials at Procter & Gamble Co. think even more fines are likely as a result of probes still under way across Europe.

The size of those reserves – $267 million – and the extent of the investigations suggest the Cincinnati-based consumer products giant played a major role in what authorities view as a widespread industry scheme to restrict competition in Europe, according to antitrust experts.

“This isn’t very technical, but yeah, they’re in a heap of trouble,” said Spencer Waller, a professor at Loyola University Chicago School of Law and director of its Institute for Consumer Antitrust Studies. P&G’s reserves indicate hefty fines are being contemplated, of the kind that are typically assessed against “ringleaders and big participants,” he said.

The European investigations are looking into the activities of manufacturers of consumer products, including large global players such as Unilever, Colgate-Palmolive, Sara Lee Corp. and Henkel. In response to questions about the investigations, P&G officials said the matters are not new and date back “many years,” but they have not disclosed further details about the time frame or the nature of the activities being probed.

P&G: No fines to date
Investigators are looking at many product categories, including detergent, cosmetics and personal care products.

Paul Fox, P&G’s global operations spokesman, said the company has not been assessed any fines to date. In addition to notices of violations issued by France and Italy in December, the company previously received a formal complaint from Germany related to one of its subsidiaries in that country. That case is still pending, he said.

Robert McLeod, CEO of Brussels-based Mlex, a European business intelligence service, said a lot more investigations should be expected. Once competition authorities find a pattern of behavior in one market, they assume they’ll find similar behavior in others, he said. Those multiple investigations pose an additional risk. Once a company establishes a record of violations, authorities tend to levy stiffer fines based on their reputation, he said.

The charges for those potential fines are not tax-deductible, so the bottom-line impact of P&G’s $267 million of charges was equivalent to a tax-deductible expense of about $380 million.

An internal investigation
Investigations have been undertaken by the European Commission, which has jurisdiction over matters involving members of the European Union, and by competition authorities in individual countries, including France, Britain, Germany, Italy, Spain, Greece, Switzerland and others.

P&G disclosed the $267 million in charges last month when it released its financial results for its October-December quarter. The charges reduced its earnings per share by 9 cents. It has not disclosed how much it has put aside in total since the industry probes began four or five years ago.

P&G took a small reserve in 2008 related to the German complaint but has not taken reserve charges related to any of the other probes, Fox said.

Germany fined Sara Lee, Unilever and Henkel a total of 37 million euros (or $55 million) in February 2008 after determining that they and Colgate-Palmolive colluded to push through price increases for dishwashing detergents, shower gels and toothpaste. Colgate was not fined because it told German authorities about the scheme. P&G was not directly implicated.

P&G said in its latest financial report that it has completed its own internal investigation of the situation, which turned up violations “in certain European countries” and has taken what it deems “appropriate action.” But it did not elaborate. Nor has it said how far up the chain of management the violations went.

“We respect the privacy of our employees and will not comment on individual situations,” Fox said.

The company conducted an extensive inquiry using outside counsel, and it and its board have “complete confidence in our senior management team,” he said. All employees understand that failing to comply with the company’s business conduct standards will result in the appropriate discipline, “up to and including terminations,” he said.

“It has and always will be our policy to comply with the letter and spirit of the law everywhere we do business,” Fox said.

Other big firms questioned
P&G’s charges of $267 million are much larger than related amounts publicly disclosed by other companies to date, but it’s not clear if that is a reflection of the companies’ differing sizes or culpabilities, different disclosure requirements in Europe, or if there are other reasons. It could be that P&G is simply being more transparent.

According to recent filings with the Securities and Exchange Commission:

• In January 2010, Sara Lee was fined 3.7 million euros ($5 million) by Spanish authorities for activities related to shower gels.

• Unilever said it also received notices of violations from authorities in France and Italy in December, but like P&G it did not disclose any details about which product categories were cited.

• Colgate said it has received statements of objection in Switzerland, Greece and Spain, in addition to the German violations for-which it was not fined. None of the companies has disclosed the size of any reserves it has taken.

It’s not clear how much P&G could face in additional potential fines. According to its latest filing: “The remaining matters are in various stages of the investigatory process. It is still too early for us to reasonably estimate the total amount of fines to which the company will be subject as a result of these various competition law issues. However, the ultimate resolution of these matters will likely result in fines or other costs in excess of amounts accrued to date.”

McLeod said the probes can drag on before any formal actions are taken.

“No one knows how soon. These things can last six months or six years,” he said.

The whole idea behind the European Union was to create a single market for trade and commerce, and that’s mostly been achieved for the kinds of products that P&G sells, Loyola’s Waller said.

Price-fixing is illegal in Europe basically the same way it is in the United States, but enforcement differs. In Europe, while some countries can impose criminal penalties for violating competition laws, the European Commission only brings civil charges and class-action lawsuits are in their infancy.



[e-mail] | [phone]

http://cincinnati.bizjournals.com/cincinnati/stories/2010/02/15/story1.html?b=1266210000%5E2871791&t=printable