The European Commission has raided the offices of two textile companies in Britain and Germany in an investigation over price-fixing allegations.
Sources said the inquiry was centred on Coats, a British textile business, and William Prym, a German rival.
Officials from the EC searched a number of premises on Wednesday, looking for evidence of the suspected violation of European competition rules.
A spokesman from the commission said the breach could include "prices, market sharing or the exchange of sensitive information". Competition watchdogs in Britain and Germany are also looking into a number of haberdashery companies. The Office of Fair Trading confirmed it was aware of the raid but added that the EC was directing the investigation.
Coats declined to comment, while no one was available at William Prym.
Coats, which divested its Marks & Spencer supply business last year to focus on thread, has a close commercial relationship with William Prym, which makes needles. A source close to the companies said it was natural for both groups to work closely together because of the high-tech nature of needle and thread manufacturing.
Coats, which used to be among the largest 100 listed companies in London in its previous incarnation as Coats Viyella, relies on sales of threads for four-fifths of its profits. The company is believed to be poised to appoint advisers to sell its fashion retail division, which owns the Jaeger and Viyella fashion brands. Its first-half profits slumped 72 per cent to £9.9m on sales of £579m at continuing operations. Its shares were unchanged at 49.75p.Reuse content