This time, experts from the SORAINEN Competition Practice Team offer a short overview on some new key aspects regarding market participant merger issues. These are the aspects to be implemented by draft amendments (Draft Law) to the Competition Law (Law).
One of the most important introductions under the Draft Law is adjustment of the criteria for notifying mergers. At present the Law states that the market participants’ merger notification must be filed with the Competition Council (Authority) if at least one of the two criteria in the Law is met:
- the so-called “turnover criterion” (if the total turnover of the merger parties amounts to EUR 35,572,000); or
- the so-called “market share criterion” (if the total market share of the merger parties exceeds 40% in any relevant market).
The plan is that the new regulation will exclude the market share criterion, so that the merger notification procedure would become clearer and more understandable. This would ensure an option for market participants to independently assess the necessity to file notification in each particular case. So far, the procedure for calculating market share has been complicated beyond reason, while it has rarely ensured market participants’ option to precisely define the market or to determine market share, in turn causing uncertainty whether the particular merger should be notified. As the Law imposes penalties in case of failure to notify a merger that requires notification, the new system is more reliable for merger parties because the turnover criterion can be easily verified.
Another significant introduction should be the establishment of a special regulation in transactions in the healthcare industry. According to the Authority's conclusions, the present regulation providing exceptions to the notification obligation causes competition limitation risks in the pharmacy sector, where turnover of individual pharmacies is comparatively small. Thus there is a risk that sooner or later individual pharmacies would come under the control of one market leader, monopolising the market in certain geographical areas. To eliminate these risks, the plan is to set a lower threshold for the turnover criterion, so that mergers in the healthcare sector would have to be notified when at least two merger participants each had a turnover of at least EUR 300,000 in Latvia in the previous financial year. This means an increase in the number of cases when market participants should notify.
The Draft Law gives the Authority the option to require notification when notification is not filed under the turnover criterion. This can occur in cases when the total market share of the merger parties in the affected market exceeds 40% or there is also substantiated suspicion that the merger could adversely affect competition in the relevant market. These rights can be exercised by the Authority within twelve months from merger implementation. Merger participants would have to independently assess the possible effect of the merger on competition. This, in turn, burdens business planning because any time during the twelve months after the merger the Authority can require notification. Moreover, after reviewing the notification the Authority can decide to prohibit the merger or decide to require commitments. Therefore even now it is important to assess the risks in the context of planned merger transactions, possibly recording them in the transaction documents.
Finally, a significant innovation is a duty to revise the merger notification in a differentiated amount depending on the merger parties' turnover in Latvia, as well as depending on whether short or full merger notification has been filed with the Authority. Although most Member States of the European Union have this duty of merger revision, the system causes a risk of increasing corruption because the same market participants will be forced to pay both state duty and fines in cases of violation. Establishment of this system should be assessed critically in the context of the increased number of cases when market participants would have to notify transactions, and in the context of the Authority's options to independently require notification even in cases when the so-called turnover criterion is not met but the Authority considers that the merger could adversely affect competition.
We would ask you to take the time to assess the impact of the amendments on your business, especially in planning merger transactions, and to be involved in adoption of the Draft Law by expressing your opinion individually or via industry associations.