The European Union's raid on the offices of Coca-Cola Co. in four countries represents the latest attack on American corporate giants that have seized the opportunity spawned by a single European market -- in which all commercial barriers among the 15 EU countries were abolished in 1992 -- to expand their reach across the continent.
The investigation, coming on the heels of a health scare that prompted the biggest recall in Coke's 113-year history when Belgian schoolchildren complained of falling sick after drinking its flagship product, could inflict a serious blow to the fortunes of the U.S. beverage giant that has become a symbol of American economic dominance around the world. Europe accounts for 20 percent of the Atlanta-based company's worldwide sales.
The EU confirmed today that its inspectors raided the Coca-Cola offices this week as part of a major antitrust investigation into the marketing practices of the world's biggest soft-drink maker.
As a virtual icon of U.S. marketing imperialism, Coke has become a prime target for European regulators seeking to thwart its aggressive global ambitions. It was blocked by French authorities from buying up the Orangina soda brand and was forced to scale down plans to acquire operations from Britain's Cadbury Schweppes PLC. The EU also imposed strict conditions on Boeing Co.'s $5 billion takeover of McDonnell Douglas Corp. in 1997, fearing the merger would give the U.S. airplane manufacturer an unfair advantage over its European rival Airbus Industrie.
Karel Van Miert, the EU's antitrust commissioner, said his inspectors carried out dawn raids over the past two days at Coke offices in Germany, Britain, Denmark and Austria, based on suspicions that the company abused its dominant position by offering retailers large discounts and rebates if they would shut out Coke's rivals.
"We suspect that Coca-Cola has offered three types of incentives, all of which are unlawful for dominant companies on any market," Van Miert said. "Let me make it quite clear that a dominant company on any market cannot indirectly bully competitors by pushing its customers to buy less of the competitor's products."
EU inspectors will examine documents and other evidence gathered during the raids to determine if Coke was engaging in illegal practices. The investigation could last more than a year and could result in fines of up to 10 percent of the company's sales in Europe if it is found guilty of infringing rules governing fair business competition.
Paul Pendergrass, a Coca-Cola spokesman in Brussels, said the company was fully cooperating with the "unannounced visits" and the scrutiny of internal files related to Coke's commercial practices with retailers and other customers. He said the company was convinced it had complied with all European competition laws and regulations.
"We do not understand the charges. We have not done anything wrong," said Svend Ivan Petersen, chief director of Nordic Coca-Cola in Denmark. "We were naturally very surprised by the raid. But we opened up our files and the materials the commission wanted to see, and we tried to cooperate."
EU officials declined to comment on whether the raids were instigated by complaints filed by Coke's competitors or irate retailers. They rejected claims that U.S. companies were being unfairly targeted in European antitrust cases,noting that British Airways PLC was fined more than $7 million last week for offering similar incentives to travel agents.
But as competition heats up between the United States and Europe for control of global markets, politicians across much of the continent have expressed fears that large American companies are stealing a march on their European rivals by taking greater advantage of a vast single market that encompasses the 15 EU nations and embraces more than 400 million affluent consumers.
Coke's status as the world's largest supplier of soft drinks has engendered frequent clashes with European regulators, who have conducted 10 investigations against the company over the past decade. But the latest inquiry comes at a time when Coke struggles to recover its reputation and lost profits that were sacrificed during a health scare that resulted in the recall of 17 million cases of soft drinks at a cost to the company of more than $100 million.
Last month, more than 100 people in Belgium and several others in France complained of headaches, dizziness and upset stomachs after drinking cans of Coke manufactured at plants in Antwerp, Belgium and Dunkirk, France. Some of the cans were later found to have been contaminated by a fungicide, but some health officials conceded that a causal link was not proven and the outbreak of illness could have been a case of mass hysteria.
Also today, Coca-Cola Chairman M. Douglas Ivester met with investors and industry analysts to talk about the company's outlook. Although the subject of the EU raid came up during the much broader briefing, it came up late in the meeting and was touched on only lightly, said Douglas M. Lane of Merrill Lynch Global Securities. Lane said that Ivester indicated that the visits were routine and that the EU was looking at market concentration in many different industries.
Lane said that Ivester indicated that damage to Coke's volume from the global economic meltdown had stabilized and was beginning to be reversed. Coca-Cola's stock rose 50 cents today, to $63.12 1/2 a share, in trading on the New York Stock Exchange.
Staff writer Martha M. Hamilton contributed to this report from Washington.
While Coke's European sales (about 20 percent of its total sales) posted a healthy increase from 1997 to 1998 . . .
Increase in Europe's soft drink sales, 1997-1998
Rest of the industry 2%
Greater Europe Group, 1998 sales
Central European 26%
Nordic and Northern Eurasia 10%
. . . its stock has suffered in the past year amid several concerns, including whether its product in Belgium was tainted. Now Coke is being dogged by an antitrust investigation by the European Union.
SOURCES: Coca-Cola, Bloomberg News
CAPTION: A girl is given a Coke during a free distribution in a Brussels supermarket earlier this month. The soft drinks were back on the shelves in Belgium following a three-week government ban after complaints of illnesses.