UPDATE: US DOJ Confirms Antitrust Probe Of Compressor Indus
February 19 2009 - 5:55PM
Dow Jones News
Two days after authorities in Brazil raided Whirlpool Corp.'s
(WHR) offices there, the U.S. Department of Justice confirmed
Thursday that it is investigating possible antitrust violations in
the multibillion-dollar refrigeration compressor industry, in
conjunction with international authorities.
"The Antitrust Division is investigating the possibility of
anticompetitive practices in the compressor industry," said Justice
Department spokeswoman Gina Talamona. "We are coordinating with
other foreign competition authorities."
Whirlpool said Thursday that it received a grand jury subpoena
Tuesday from the U.S. Justice Department seeking company documents.
The company confirmed that Brazilian and Italian authorities
visited Whirlpool offices in those countries on the same day.
Whirlpool said it would cooperate fully with the investigations
and said that, to the company's knowledge, there have been no
charges filed against the company or any of its employees.
Tecumseh Products Co. (TECUA), a Whirlpool competitor, said
Wednesday that it, too, has received a grand jury subpoena from the
U.S. Justice Department. Tecumseh said it also has received
investigatory requests from Brazilian authorities and believes the
European Commission is conducting an investigation. The company
said authorities appear to be focusing on pricing issues.
Brazilian authorities swept through Whirlpool's Sao Paulo and
Santa Catarina state offices Tuesday in an operation called Zero
Grau, or Zero Degrees, with the objective to find evidence of a
global cartel in the selling of hermetic compressors for
refrigeration. The compressors are used in household refrigerators
and freezers, as well as commercial vending machines and water
coolers.
Sixty agents left with bags full of computers, laptops and other
archival material.
Raymond James cut its rating on Whirlpool Thursday based on news
of the investigation. "An investigation may aversely affect
Whirlpool's ability to achieve pricing in its core white goods
business in 2009, which is critical to its defraying input cost
inflation and un-absorption rates," the firm said.
Whirlpool's compressor business is handled by a corporate
subsidiary called Embraco that operates as a separate company,
supplying compressors for Whirlpool brands as well as the appliance
maker's competitors.
With annual sales of about $1.5 billion, Embraco is estimated to
control as much as 25% of the global market for refrigerator
compressors.
"Anywhere there's a refrigerator in the world there's a
one-in-four chance that it has an Embraco compressor in it," said
Sam Darkatsh, a Raymond James analyst.
In Brazil alone, Embraco supplied compressors for more than 50%
of the refrigerators sold last year, according to market research
firm Euromonitor International. Unit sales of refrigerators in
Brazil had been growing by an average of 11% a year since the
1990s. But tight credit and a downturn in the economy have put a
damper on appliance sales.
Industry observers say Embraco, Tecumseh and other compressor
companies have been reluctant to slash their prices to generate
order volume during the downturn, raising customers' suspicion that
the companies had engaged in price fixing. Embraco's operating
profit margins have remained steady at 8% to 10%.
Whirlpool has said it intends to raise its prices on appliances
by 7% to 10% this year. With an investigation of Embraco now under
way, retailers may have the leverage needed to reject higher prices
from Whirlpool, said Darkatsh, who lowered his rating on
Whirlpool's stock Thursday to "outperform" from "strong buy."
"It throws a complication into the mix," he said.
-By Brent Kendall, Dow Jones Newswires; 202-862-9222;
brent.kendall@dowjones.com
(Kenneth Rapoza contributed to this report.)