Less than two weeks after the Limburg chemical company DSM was given permission by regulators to merge with industry peer Firmenich, the Swiss manufacturer of fragrances and flavors is the subject of a large-scale investigation into prohibited price agreements. The European Commission reported on Tuesday that raids had been carried out at some major manufacturers of flavourings. The Swiss competition watchdog now confirms that Firmenich is one of them.
According to the Wettbewerbskommission – WEKO for short – there are indications that the company has colluded with three industry peers to force other rivals out of the market. ‘There are suspicions that they coordinated their pricing policies, prohibited competitors from supplying certain companies and restricted the production of certain flavourings,’ writes the regulator in a statement.
In addition to family business Firmenich (converted turnover of 4.7 billion euros, 11,000 employees), raids have also been carried out at Givaudan, also based in Geneva, the German Symrise and the American International Flavors & Fragrances. The investigation into violations of competition rules is done in collaboration with regulators in the European Union, the United States and the United Kingdom.
The raids are a first step, WEKO and the European Commission emphasize, and are still based on suspicions. The fact that the Commission conducts such investigations does not mean that companies are also guilty. In addition to the four companies investigated, the Commission also put questions to other companies in the fragrances and flavors industry.
Full disclosure
The taste makers on which the research focuses are among the largest companies in their sector. They supply fragrances and flavors to a very broad group of customers. Their synthetic aromas can be found in soft drinks and chicken spices, in cosmetics and cleaning products. Givaudan is the largest in that industry, Firmenich comes in second.
In response to the statement of the Swiss cartel authority, Firmenich confirms the raids. The company says in a written statement that it is “fully cooperating” with the investigations. Givaudan and Symrise say so too. In price-fixing investigations, it is common for companies that provide full disclosure to receive lower fines. This is even more true for a company that reported the violations to the regulator.
It is currently unclear how long the investigation by the regulators will take. According to the European Commission, this depends, among other things, on the cooperation of the parties. The British regulator thinks it will certainly need until early next year to collect all the necessary data. Companies found guilty of antitrust violations risk a penalty of up to 10 percent of global turnover.
The news about the possible price agreements comes while the merger between DSM and Firmenich is already in full swing. The shareholders previously voted en masse, and in February the European regulator also announced that it agreed. The only thing left to do is wait for permission from India.
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Lower on stock market
By combining their activities, Firmenich and DSM, once an operator of the state-owned mines, will grow into one of the largest food and health companies in the world. Research and innovation are crucial both in the food sector – DSM’s field – and in aromas. Working together makes things go faster. The merged company will become Swiss, although the DSM office in Heerlen will be retained.
DSM (turnover of 8.4 billion euros, 20,000 employees) did not want to respond to reports about the raids on Wednesday. “The investigation has nothing to do with us,” said a spokesman. According to him, DSM – which lost just under 4 percent on the stock market – was also not asked to provide data.
Firmenich says in a statement that it does not expect the research to have consequences for the merger with DSM.