Fresh blow for OFT as tobacco giant sees £112m pricing fine overturned

Imperial Tobacco was among the biggest risers on the stock market yesterday after a £112 million fine for alleged unlawful pricing was overturned.

The Office of Fair Trading (OFT) last year accused the cigarette maker – which owns brands including Embassy, John Player Special and Lambert & Butler – of restricting competition and imposed a £112.3m penalty.

But the Competition Appeal Tribunal (CAT) has reversed the decision and also ruled in favour of Asda, the Co-op, Morrisons and Shell in similar cases.

Tobacco retailers and manufacturers were fined a record £225m after the OFT’s allegations of unlawful pricing, insisting the agreements over price links between rival brands “restricted the ability of these retailers to determine their selling prices independently”.

The allegations were in relation to certain promotional arrangements between Imperial and multiple retailers between 2000 and 2003.

Imperial said: “The hearing by the CAT was the first time since the OFT’s investigation began more than eight years ago that we were able to have its allegations independently reviewed.

“Under this independent scrutiny it became clear that the case the OFT was seeking to establish had no basis in fact, law or economics.

“We have consistently believed that this ought to have been apparent to the OFT a long time before now and that we should not have been forced into incurring considerable legal costs and management time defending ourselves in these circumstances.”

A spokeswoman for OFT yesterday said: “We are disappointed and we’ll now be considering the judgment.”

Imperial, which also makes Golden Virginia rolling tobacco and Rizla cigarette papers, was the second-biggest riser in the FTSE 100 index – up 12p or 0.5 per cent at 2,363p – following the decision, with defensive stocks in high demand.

Rival British American Tobacco – which makes brands including Benson & Hedges, Dunhill and Lucky Strike – was up 1.5p at 3,000p.

The pair were also boosted by a positive note from Investec analyst Martin Deboo.

Michael Hewson, a market analyst at CMC Markets, noted: “Defensives are popular again with tobacco, utilities and health care stocks pushing higher. GlaxoSmithKline is one of the lead gainer, while BAT and Imperial Tobacco are also higher.”

In March, fines imposed on the construction industry as a result of the OFT’s biggest investigation were cut by 89 per cent causing embarrassment for the watchdog. CAT said those fines were “excessive given the nature of the infringement” and cut them from a total of £41.8m for six companies to £4.4m.

Kier, the FTSE 250 construction group had its fine cut from £17.9m to £1.7m and, at the time, lawyers said the judgment put a huge question mark over how the OFT calculates fines.