The Competition Council was recently requested to interpret provisions in the Competition Law on the calculation of turnover for merger evaluation purposes. The council's explanation marked a turning point in the existing administrative practice on this issue.
Pursuant to the Competition Law, the Competition Council must be notified of a merger if one of the following conditions is met: (i) the combined sales of the merger participants in the previous financial year was at least 25 million lats (37.3 million euros); or (ii) the combined share of the merger participants in the market in question exceeds 40 percent.
With respect to the procedure and principles for calculating turnover, the law does not precisely state whether it is the worldwide turnover of the participants or only turnover in Latvia that must be taken into account. This issue is of utmost importance if, for example, one of the merger participants is a foreign entity that is not engaged in business activities in Latvia.
The Competition Law defines a "market participant" as any entity 's whether Latvian or foreign 's which engages or is preparing to engage in business activities in the territory of Latvia, or whose activities affect or might affect competition within the territory of Latvia. Given this definition, it was total worldwide turnover that was previously taken into consideration for merger evaluation purposes.
However, the Competition Council was recently asked to clarify the procedure and principles for calculating turnover by two market participants, one of which was a company incorporated in Latvia and the other a foreign entity. The Competition Council stated that it is competent to evaluate mergers that affect the Latvian market, and therefore that the turnovers stated in the law refer to the net turnovers obtained from the sale of goods or provision of services in the Latvian market. Hence, the Competition Council indicated that if a foreign entity has concluded no business activities in Latvia prior to the merger, and has no controlling shareholding in any company incorporated in Latvia, then the proposed transaction will not result in a concentration that should be notified and evaluated pursuant to the Competition Law.
The number of mergers effected in Latvia is increasing rapidly as foreign investors move to acquire local undertakings. This change in the criteria for evaluating such transactions may have a material impact on future mergers of economic importance, making them less complicated and less conditional on the approval of the competition authorities.
Karlis Reihmanis is partner
at Loze & Partners
