TerraLex Cross-Border Guide to Pre-Merger Notification Guide

Yes.

Yes. To reduce possible non-compliance risks, merger participants may notify the transaction even when the filing thresholds (see question 4) have not been triggered.

The following types of transactions are caught: - two or more independent market participants merge;

• one market participant is merged into another market participant;
• one or more individuals already exercising decisive influence over at least one market participant, or one or more market participants acquire: (i) all or part of the assets or rights to use those assets; or (ii) direct or indirect decisive influence over at least one market participant. The acquisition of assets or rights to use those assets constitutes a merger if it results in the acquirer’s market share increase in any relevant market; and
• two or more individuals jointly or one individual acquires: (i) all or part of the assets or two or more market participants or rights to use those assets; or (ii) direct or indirect decisive influence over two or more market participants.

The concept of “decisive influence” in the Competition Act mirrors the concept of control under the EC Merger Regulation: “the decisive control” is defined as the ability, directly or indirectly, to (i) control (permanently or occasionally) the decision-making in the management bodies of the market participants, through shareholding or otherwise; or to (ii) appoint sufficient number of members in the supervisory and management bodies of the market participant in order to gain majority vote in that body.

There are two exceptions from the merger control rules when the filing obligation does not arise:

• credit institutions or insurance companies whose activities include transactions with securities for own or other funds have time-limited ownership rights to market participant’s securities, which they have acquired for further sale, provided that (i) such credit institutions or insurance companies do not use the voting rights created by these securities to influence the competitive activities of the relevant market participant, or (ii) they use the voting rights created by the securities only to prepare the investment of the market participant, or a part thereof, or its assets or the relevant securities, and this investment takes places within one year after the creation of the voting rights. The Competition Council may extend the one-year time-limit on the basis of a submission from the credit institution or insurance company if it proves that it was impossible to complete the investment within the one-year time-limit;
• in case of insolvency or liquidation of a market participant a liquidator or an administrator acquires decisive influence over this market participant.

Merger thresholds are met when in the year preceding the year of the transaction the total Latvian turnover of all merger participants exceeded €30 million and the Latvian turnover of at least two merger participants each exceeded €1.5 million.

There are no special provisions regarding joint ventures. Joint ventures are caught by the merger control rules if they involve acquisition of shares or assets the same way as in case of other market participants (see question 3). The Competition Council follows the European Commission Jurisdictional Notice under Council Regulation (EC) No 139/2004 (Jurisdictional Notice), which means that only full function joint ventures are caught by the merger regime.

The transaction is notifiable whenever the turnover threshold criteria are met (See question 4). This means that foreign-to-foreign transactions which satisfy the turnover thresholds are also caught by the merger regime.

There are two forms of merger notification, the full-form merger notification and the short-form merger notification. The full-form merger notification must contain the following information:

• corporate, financial and business data on market participants and description of their business activity;
• Latvian turnover data of all merger participants in the year preceding the year of transaction;
• description of the planned transaction (objective and rationale, legal, financial and economic aspects);
• description of the relevant markets; and
• competitive assessment of the transaction.

The short-form merger filing requires less information in respect to relevant markets and description of business activity. The short-form filing may be submitted in the following cases:

• merger participants do not operate on the same relevant market or any market which is vertically related;
• the combined market share of the merger participants operating on the same market does not exceed 20%;
• the market share of the merger participants operating on related vertical markets does not exceed 30% each;
• the joint control will be established over a market participant which does not and is not planning to operate in Latvia; or
• the acquiring party acquires sole decisive influence over a party in which it exercised joint decisive influence.

If the Competition Council considers that the merger which was filed using a short-form merger notification requires an in-depth investigation, it may require that parties submit a full-form merger notification.

The time limit for compiling a merger notification depends on the particular case. Typically, the gathering of necessary information takes two to three weeks.

Yes. The merger participants may ask the Competition Council to exempt them from the obligation to submit particular information or documents, if such information or documents are not necessary for the examination of the merger. The Merger Guidelines stipulate that this exemption may only be applied if obtaining of such information or documents is objectively impossible or burdensome. The Competition Council has a discretion to decide whether the request for exempting certain data is justified. If it is not, the filing is considered incomplete.

Yes. The fee is €2,000 for submitting a short-form notification, a voluntary notification (when the notification thresholds are not met) or a post-merger notification upon a request of the Competition Council (See question 14).

The fee is €4,000 if in the year preceding the year of transaction the total Latvian turnover of the parties was below €80 million.

The fee is €8,000 if in the year preceding the year of transaction the total Latvian turnover of the parties was above €80 million.

There is no statutory deadline for filing a notification, however, the parties may not close the transaction before a filing was made. The filing may be made based on intent of the parties to enter into a notifiable transaction (for example, based on memorandum of understanding, letter of intent), however, if the factual circumstances have substantially changed in between the clearance decision and completion of the transaction, the Competition Council may request that a new filing is submitted.

The Competition Act prohibits completion of a notifiable transaction prior to the notification, but it does not prohibit completion of the transaction before the clearance and does not impose any waiting or standstill obligations.

However, the Competition Council may impose penalties, if it adopts a negative decision, and the transaction in the meantime has been completed prior to this decision, or if it adopts a clearance subject to commitments, and the transaction has been completed disregarding these commitments.

National merger control regime provides for two phases of merger review, Phase I and Phase II (in-depth investigation). Within Phase I, the Competition Council has one month from the date when a complete notification has been submitted to adopt one of the following decisions: (i) clear the merger unconditionally, (ii) clear the merger subject to commitments, (iii) prohibit the merger, or (iv) open an in-depth investigation (Phase II).

The notification is deemed to be filed on the date when the Competition Council receives a “complete” filing. The Competition Council has five business days from the date of the submission to request additional information if it considers the initial filing incomplete. If the notifying party becomes aware of new facts or changes which may affect the merger review after the notification has been submitted, it should immediately inform the Competition Council thereof. Submitting this new information resets the timetable.

If the Competition Council fails to adopt one of the abovementioned decisions within 45 days from the date of a notification, the transaction is deemed to be cleared unconditionally by virtue of law.

If the Competition Council decides to open Phase II, it has to render a final decision within four months from the date of the filing in case of a full-form merger notification, or within three months from the date of the filing in case of a short-form merger notification.

The vast majority of mergers are cleared in Phase I, that is, within 30 days from the date of submission.

The Competition Council may impose a penalty on the newly formed entity or on the market participant which has acquired control in the merger in the amount of up to 3% of its turnover in the previous year for (i) failure to notify a notifiable merger, (ii) completing a transaction despite the negative clearance decision, or (iii) failure to comply with the commitments imposed by the Competition Council. The payment of the penalty does not release the penalized parties from their obligations to comply with the decisions of the Competition Council.

The Competition Council has the power to request a merger filing for a transaction which did not trigger notification and which was completed in the previous twelve months, if the following cumulative conditions have been met:

• the combined market shares of the parties exceeds 40%; and
• there are justified concerns that the merger may strengthen or result in a dominant position or it may significantly reduce competition on the relevant market.

Other than that, the Competition Act does not provide for a waiting period or for a post-closing challenge. The Competition Council could revoke the merger clearance under general tenets of the administrative law in the following cases:

• the parties fail to comply with the commitments imposed by the clearance decision;
• there have been a change if factual or actual circumstances which could have affected the adoption of a positive decision by the Competition Council, and the clearance decision will affect important public interests if it stays in force (in this scenario, merge participants are entitled for compensation from damages occurred by revoking the decision);
• the Competition Council has adopted a decision in violation of law, and the clearance decision will affect important public interests if it stays in force (in this scenario, merge participants are entitled for compensation from damages occurred by revoking the decision);
• the Competition Council has adopted a decision in violation of law, and the cleared transaction has not yet been implemented, provided the Competition Council revokes the clearance within three months from the moment it becomes aware of this and that the decision was adopted not earlier than a year ago;
• the decision has been adopted based on false information provided by the parties or by virtue of bribery, threats or other illegal conduct; or
• it is blatantly obvious that the positive clearance decision is illegal.

If the transaction is not notifiable but could be subject to post-merger notification (see question 14), the parties may ask for a confirmation from the Competition Council that it will not require a post-merger notification.

Merger transactions are reviewed by the Competition Council, which is a public authority under the Ministry of Economics. The Competition Council is authorized to monitor compliance with the merger control rules. In this capacity, it has a power to initiate investigations, impose penalties for failure to notify a notifiable merger, impose conditions on merger clearance, prohibit mergers, require a post-merger notification, and file claims in a court.

Within three business days from receiving a merger notification, the Competition Council publishes on its website the fact and the date of the merger filing and the names of the parties involved.

If the Competition Council decides to open Phase II review, it may publish on its website a call for interested parties to submit their opinions regarding the notified transaction. In this case, it will also publish the type of the notified merger and the economic sectors which may be affected by the merger.

The final decision of the Competition Council is published on its website and in the official publication. Notifying parties should indicate in the merger notification the information which is confidential and provide a justification for the request to grant this information the confidential status. The confidential information is omitted from the publication and not revealed to third parties if they are granted access to the file.

Mergers are likely to be reviewed in Phase II and could be subject to commitment decisions or be prohibited if they create or strengthen dominant position, or if the parties involved have significant market shares in the same or related markets.

Making use of pre-notification meetings with the Competition Council and cooperating with the authority once the filing is made may ensure a swifter reviewing process. If the Competition Council considers the merger “problematic”, notifying parties should propose commitments that would address potential competition concerns.

Certain sectors may be exempted from investment by foreign parties, e.g. for national security reasons. Specific limitations apply to purchase of agricultural land by foreigners. Mergers in regulated sectors may be subject to specific rules imposed by the regulatory authorities. This is the case, for example, in financial markets where additional requirements are enforced by the Financial and Capital Market Commission.