Record fine over cigarette price fixes

By Megan Murphy and Pan Kwan Yuk

Published: July 11 2008 20:39 | Last updated: July 11 2008 20:39

A tobacco manufacturer and five retailers agreed to pay the biggest collective penalty handed down by the UKs competition watchdog on Friday for price-rigging after admitting their role in efforts to boost the cost of cigarettes.

The six companies agreed to pay £132m to settle the charges with Gallaher, one of two tobacco manufacturers involved in the case, shouldering the lions share of the burden after agreeing to pay £93m.

Asda, First Quench, One Stop Stores, Somerfield and TM Retail have also signed so-called early resolution agreements with the OFT in exchange for a significant reduction in the fine that would otherwise have been imposed at the conclusion of the probe.

Discounts given for their co-operation will shave £40m off the maximum fine of £173m, as long as they continue to assist with the investigation, the OFT said.

The deal, announced by the Office of Fair Trading, leaves Imperial Tobacco and five other big retailers including Tesco still fighting the allegations.

J. Sainsbury, the first company to apply for leniency, has received complete immunity from any financial penalty as long as it continues to co-operate with the probe.

The OFT is very pleased that the early co-operation of these parties has enabled the swift resolution of this case, which will significantly reduce the costs of pursuing the investigation, John Fingleton, the OFTs chief executive, said.

Experts said it was too soon to tell how the settlements would affect the six other companies still involved in the case Imperial Tobacco, Tesco, Wm Morrison,Safeway, Royal Dutch Shell and Co-operative Group.

While Tesco settled on behalf of One Stop Stores, which it acquired in 2003, the retailer said last night that it would continue to vigorously contest the allegations that it was involved in any unlawful activity.

You only settle early if you think you have no defence, Mike Pullen, a lawyer at DLA Piper in London, said. Its a risk, but the other companies involved must think they have a good defence.

Businesses involved in price-fixing can face fines of up to 10 per cent of annual turnover, although reductions are given in exchange for co-operation.

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Record fine over cigarette price fixes