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Trends and climate

Trends
How would you describe the current merger control climate, including any trends in particular industry sectors?

In recent years there has been little M&A activity, which has affected the merger control climate. Due to the introduction of certain legislative restrictions for the acquisition of pharmacies in 2015, several concentrations in this sector were notified before the restrictions entered into force.

Reform
Are there are any proposals to reform or amend the existing merger control regime?

The Competition Authority is considering whether to amend the jurisdictional thresholds for the application of merger control and whether to introduce a rule allowing it to request notification of a concentration even if the relevant thresholds are not exceeded.

Legislation, triggers and thresholds

Legislation and authority
What legislation applies to the control of mergers?

The merger control rules are set out in the Competition Act. In addition, the minister of economic affairs and communications has issued regulations setting down the Guidelines for the Submission of the Concentration Notification and the Guidelines for the Calculation of Turnover.

There are no sector-specific concentration control rules. However, sector-specific statutes set out additional general requirements for mergers and acquisitions involving credit institutions, insurers, investment fund managers and investment companies.

What is the relevant authority?

Merger control is generally handled by the Competition Authority. Additional sector-specific requirements for mergers and acquisitions involving credit institutions, insurers, investment fund managers and investment companies usually fall under the competence of the relevant sector-specific authority (eg, the Financial Supervision Authority).

Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?

The merger control rules apply to a transaction if it results in a concentration. The following types of transaction are considered to be concentrations:

  • Previously independent undertakings (or parts of those undertakings) merge within the meaning of the Commercial Code.
  • An undertaking acquires control of the whole or a part of another undertaking, or of several undertakings or parts thereof.
  • Undertakings jointly acquire control of the whole or a part of another undertaking, or of several undertakings or parts thereof.
  • A natural person that already controls at least one undertaking acquires control of the whole or a part of another undertaking, or of several undertakings or parts thereof.
  • Several natural persons that already control at least one undertaking jointly acquire control of the whole or a part of another undertaking, or of several undertakings or parts thereof.

In essence, for there to be a concentration, a change of control is required. ‘Control’ is defined in the Competition Act as the opportunity for one undertaking (or natural person) or several undertakings (or natural persons) jointly to exercise direct or indirect influence on another undertaking through purchasing shares or on the basis of a transaction or the articles of association, or by any other means, which may consist of a right to:

  • exercise significant influence on the composition, voting or decision making of the management body of the other undertaking; or
  • use or dispose of all or a significant proportion of the assets of the other undertaking.

Intra-group restructuring does not result in a concentration because the ultimate controlling party remains the same.

Do thresholds apply to determine when a transaction is caught by the legislation?

Yes. A concentration is subject to control and must be notified if, during the preceding financial year:

  • the aggregate turnover in Estonia of all parties to the concentration exceeded €6 million; and
  • the aggregate turnover in Estonia of at least two parties to the concentration exceeded €2 million.

‘Turnover in Estonia’ means turnover accruing from the sale of goods to purchasers located in Estonia. Direct sales into Estonia are sufficient to trigger concentration control.

As is clear from the jurisdictional thresholds, at least two parties to the concentration must have sufficient turnover in Estonia. Thus, a single party’s sales, assets or market share cannot trigger the merger control procedures.

The parties to the concentration are:

  • the merging undertaking or an undertaking whose share is being merged;
  • the undertaking(s) or natural person(s) which acquires or which jointly acquire control of another undertaking or undertakings (or parts thereof); and
  • the undertaking or a part thereof which is subject to the acquisition of control (ie, the target).

Where a joint venture is created, only the parents of the joint venture are considered to be parties to the concentration. 

When calculating the turnover of the parties to the concentration:

  • in the case of the acquirer, the turnover of the acquiring undertaking and all of its group companies should be taken into account; and
  • in the case of the target, only the turnover of the target and undertakings controlled by it should be considered.

The turnover of the parties to the concentration does not include turnover that is generated from sales of goods and services between undertakings that belong to the same group.

There are two ‘two-year’ rules:

  • If the same persons or undertakings have acquired control over the target through multiple transactions over a period of two years, such transactions will be deemed to be a single concentration and the turnovers of all parts of the target must be included in calculating the overall turnover.
  • If, within the preceding two years, the acquirer or an undertaking belonging to the same group has acquired control of undertakings that operate within the same economic sector in Estonia, the turnover of the target must include the turnovers of the targets acquired within the preceding two years.

Informed guidance
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?

Yes – it is possible to seek informal guidance from the Competition Authority and this is encouraged by the authority.

Foreign-to-foreign
Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?

There are no special rules for foreign-to-foreign mergers. There is no ‘local impact’ test, but the jurisdictional thresholds require that at least two parties to the concentration have considerable turnover in Estonia.

Joint ventures
What types of joint venture are caught by the legislation?

The merger control rules apply to the establishment of a ‘full-function’ joint venture (ie, a joint venture that fulfils the functions of an independent business entity operating on a lasting basis). However, if several undertakings acquire joint control over an undertaking in which they had no holding before the concentration, the merger control rules may apply irrespective of whether the resulting joint venture will be full function.

Notification

Process and timing
Is the notification process voluntary or mandatory?

The notification process is mandatory, provided that the jurisdictional thresholds are met.

What timing requirements apply when filing a notification?

There is no deadline for filing the notification. The law stipulates that the notification must be submitted to the Competition Authority after the conclusion of a merger agreement or a transaction for acquisition of control or joint control or the announcement of a public bid of securities, and before the concentration is implemented. However, notification may also be submitted to the authority before these events if the parties can prove their intent to enter into the concentration. In principle, this allows the parties to file a notification on the basis of a letter of intent or similar document.

However, although the Competition Authority (under the Competition Act) allows submission of a notification before a definite agreement has been signed, it requires the definite agreement before making its final decision. If the definite agreement is not submitted to the authority before the deadline for making the relevant decision, the authority will suspend the proceedings due to incomplete notification.

What form should the notification take? What content is required?

The content of the notification depends on whether the concentration fulfils the criteria for a simple notification or whether a full notification must be submitted.

A simple notification can be filed if:

  • the markets in which the parties are active do not overlap either horizontally or vertically;
  • there is a horizontal overlap, but the concentration will not lead to a combined market share exceeding 15%;
  • vertical relations between the relevant markets exist, but the individual or combined market shares do not exceed 25%;
  • a new joint venture will not operate in Estonia; or
  • the party acquiring control already exercised joint control before the concentration.

The notification must include data on each party’s total turnover and turnover by jurisdiction, the market shares of the parties on the overlapping markets and other markets in which parties are active.

The full notification must include market data, including information on the parties to the concentration, their competitors and clients, their market shares, barriers to entry and the supply and demand structure for the three years preceding the notification.

Regardless of the notification used, the Competition Authority may require additional information in the course of the proceedings.

Is there a pre-notification process before formal notification, and if so, what does this involve?

The Competition Authority encourages pre-notification contact, but there is no formalised process for such contact. Usually, the parties meet with authority officials to inform them of the transaction and discuss the procedural and substantive issues informally. However, the authority will not issue a binding opinion as to whether it would clear the merger.

Pre-clearance implimentation
Can a merger be implemented before clearance is obtained?

A merger must not be implemented before clearance is obtained, unless the Competition Authority has given permission for early implementation or the transaction relates to a public bid of securities and complies with certain specific requirements.

Guidance from authorities
What guidance is available from the authorities?

The Competition Authority encourages pre-notification contact so that the parties can discuss with it the content of the notification and requests for waivers with respect to certain requirements (eg, translation of documents).

Fees
What fees are payable to the authority for filing a notification?

The notifying party must pay a fee of €1,920 before filing the notification.

Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?

The Competition Authority publishes an informative notice on its website after the notification has been officially filed and the formal procedure has been initiated. The authority usually uses the summary of the notification (non-confidential version) that the notifying party must provide under the law.

In principle, the following documents may be published by the Competition Authority or disclosed to third parties:

  • a summary of the notification (each notification must include a non-confidential summary for such purpose);
  • other non-confidential parts of the concentration notification (eg, not business secrets);
  • any of the non-confidential supporting documents;
  • any other non-confidential submissions made by the parties; and
  • the Competition Authority’s decision (from which confidential parts have been redacted).

Prohibition and clearance decisions are published on the Competition Authority’s website. Business secrets are removed before publication if and to the extent requested by the notifying party.

The person filing a notification must indicate any information contained in the notification which is deemed to be a business secret. However, the law defines the types of information that may constitute a business secret and lists specific information that cannot be deemed a business secret. For example, the merger itself and the business names, registration codes, contact information and fields of activity of the parties to the concentration, and information about their shareholdings and group structure, cannot be considered business secrets.

Penalties
Are there any penalties for failing to notify a merger?

Pursuant to the Competition Act, a fine of up €400,000 may be imposed on a legal person which implements a concentration without clearance, violates a prohibition against the concentration or breaches the terms and conditions of a clearance decision. A natural person who commits the same offence may be punished by a fine of up to €1,200 or detention for up to 30 calendar days.

Thus, penalties are imposed for failure to notify a merger only if the merger is actually implemented.

The Competition Authority is very active in monitoring transactions. In addition to acting on complaints, it monitors information from public sources, such as newspaper articles and press releases. The authority has imposed penalties for failure to notify a merger, but only rarely.

Procedure and test

Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?

The Competition Authority has 30 calendar days in which to:

  • clear the concentration;
  • conclude that the transaction is not subject to control under the Competition Act; or
  • decide to initiate additional proceedings (ie, the Phase II investigation).

If the authority fails to adopt a decision within the prescribed timetable, the concentration is deemed to be cleared.

There are no strict rules regarding when the authority may initiate additional proceedings. It may do so if it considers this necessary to decide whether there are grounds to prohibit the concentration.

If the Competition Authority decides to initiate additional proceedings, it must either clear (with or without conditions/remedies) or prohibit the concentration within four months of this decision. The authority may suspend these deadlines for two months where necessary to assess the remedies proposed by the parties. The law also provides for suspension of the deadlines if the notifying party does not provide information requested by the Competition Authority.

The maximum deadlines may not be shortened. However, in practice, the Competition Authority has cleared mergers within a much shorter timeframe (even within eight to 10 calendar days) where the merger raised no competition issues. The procedure may be accelerated by pre-notification discussions with the authority.

The authority will terminate the proceedings if the parties abandon the concentration.

The merger must be implemented within six months of receipt of clearance from the Competition Authority. At the request of a party to the concentration, the authority may extend this deadline to one year, but such extension may be provided only once.

What obligations are imposed on the parties during the process?

During the merger control process, the parties must cooperate with the Competition Authority by providing all documents and other information that the authority requires. The parties also must not implement the merger before clearance has been obtained, unless the authority has granted an exception to this rule.

What role can third parties play in the process?

Third parties may, within seven calendar days of publication of the notice of submission of the notification, submit to the Competition Authority their opinions on and objections to the merger.

In more complex cases the authority also conducts a market survey during which it questions different market participants (eg, suppliers, competitors and clients) in order to check the information provided by the parties and determine the relevant markets and the market positions of different players. The authority may also ask market participants for comments regarding the remedies offered by the parties.

Substantive test
What is the substantive test applied by the authority?

According to the Competition Act, the Competition Authority will prohibit a concentration if it would significantly impede competition on the relevant market – in particular, as a result of the creation or strengthening of a dominant position.

The Competition Act defines ‘dominance’ as follows:

“An undertaking in a dominant position is an undertaking or several undertakings operating in the same market whose position enables it/them to operate in the market to an appreciable extent independently of competitors, suppliers and buyers. Dominant position is presumed if an undertaking or several undertakings operating in the same market accounts/account for at least 40% of the turnover in the market.”

The authority’s assessment of a concentration comprises:

  • the definition of the relevant product and geographic markets; and
  • an appraisal of the concentration.

According to the Competition Act, the appraisal of a concentration is based on the need to maintain and develop competition, taking into account the structure of the relevant market and actual and potential competition on that market, including:

  • the market position of the parties to the concentration, their economic and financial power and the opportunities for competitors to access the market;
  • legal and other barriers to entry on the market;
  • supply and demand trends for the relevant goods; and
  • the interests of buyers, sellers and consumers.

The substantive analysis under the Estonian merger control rules is essentially based on the same principles as the review carried out by the European Commission under the EU Merger Regulation.

For this reason, the Competition Authority often follows the previous practice of and guidelines developed by the commission, with respect both to market definitions and the substantive assessment of concentrations.

As can be seen from the substantive test, the Competition Authority is not only concerned with the creation or strengthening of a dominant position, but also takes a wider look at the competitive situation on the market.

Through the merger control rules, the Competition Authority (following the guidance of the European Commission) seeks to prevent transactions that would be likely to increase the parties’ market power significantly. In this context, ‘increased market power’ means the ability of one or more undertakings to profitably increase prices, reduce output, choice or quality of goods and services, diminish innovation or otherwise influence parameters of competition.

Carve-outs
Does the legislation allow carve-out agreements in order to avoid delaying the global closing?

There are no special rules for carving out certain assets and legal entities in order to transfer them at a later date. In order for such a carve-out to be effective, the relevant assets and legal entities must be removed from the target altogether, so that the remaining part of the target would not trigger merger control in Estonia.

In this respect, a carve out may, in itself, be a concentration subject to control.

Test for joint ventures
Is a special substantive test applied for joint ventures?

There is no special substantive test for joint ventures. These are assessed based on the same test as other concentrations. However, the Competition Authority also examines whether the object or effect of creation of the joint venture is to coordinate behaviour between the undertakings that established the joint venture.

In its assessment, the authority primarily takes into account the following:

  • whether the undertakings creating the joint venture will operate in the same relevant market as the joint venture or in vertically related markets; and
  • whether the coordination of behaviour that results from the creation of the joint venture will enable the joint venture to eliminate competition in the relevant market or in a significant part thereof. 

Remedies

Potential outcomes
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.

The Competition Authority may issue a decision to:

  • prohibit the concentration;
  • clear the concentration with conditions; or
  • clear the concentration unconditionally.

In most cases the Competition Authority grants unconditional clearance; but in certain cases it has imposed specific conditions that the parties must fulfil in order to address its concerns about the concentration.

The Competition Act provides that the parties to the concentration may offer specific remedies to relieve the authority’s concerns. In this connection, the authority cannot impose any remedies of its own; the remedies must always be proposed by the parties to the concentration.

The authority has approved both structural remedies (eg, an obligation to sell part of the business) and behavioural remedies (eg, an obligation to limit sales for a certain period), although it prefers structural remedies.

Appeals

Right of appeal
Is there a right of appeal?

A decision to clear or prohibit a concentration may be challenged before the Competition Authority as an administrative body or appealed before the courts by the parties to the concentration or a third party whose rights are infringed or freedoms are restricted by the decision. In previous cases, competitors have successfully appealed.

As the challenge proceedings are not a mandatory pre-condition for an appeal before the courts, a person may either challenge the decision first before the Competition Authority and then before the courts, or file a complaint directly with the Tallinn Administrative Court.

Do third parties have a right of appeal?

A third party which can prove that its rights have been infringed or its freedoms restricted by the Competition Authority’s decision is entitled to appeal. In previous cases, competitors have successfully appealed.

Time limit
What is the time limit for any appeal?

An appeal (as either a challenge or a complaint) may be submitted within 30 calendar days of the decision being made public. An administrative court decision may further be appealed to the circuit court and eventually to the Supreme Court.

Law stated date

Correct as of
Please state the date as of which the law stated here is accurate.

The law stated here is accurate as of May 16 2015.