Latest developments in merger control in the Baltics and Belarus
Authors: Liisa Kuuskmaa, Marika Grunte, Dobilė Minkute, Aliaksei Vashkevich
Now that the winter months are approaching fast, it is time to look back on the developments of the previous months in the field of merger control in the Baltic countries and Belarus. Despite the pandemic and the summer season, there have been some legislative developments, and a number of transactions have been examined by the national competition authorities. All this serves as an interesting and useful insight both for lawyers, as well as for businesses who wish to gain a better understanding of merger control requirements and the markets that they operate on.
Estonian Competition Authority analyses biofuel markets
From June to September 2020, the Estonian Competition Authority (the ECA) issued 13 merger clearance decisions. The authority’s decisions give valuable insight into a wide variety of economic sectors including real estate, healthcare, energy, logistics, financial services, food and basic necessities, electronics, etc. The ECA analysed, among others, markets such as wholesale of food and basic necessities; corporate banking, which is divided into corporate lending, government sector lending, leasing, and accreditives; road transportation; freight forwarding services; wholesale of electronic security systems; production and wholesale of electricity; retail of electricity; and production, distribution and sale of heat.
The most thorough and arguably the most interesting analysis carried out by the ECA concerned a transaction whereby a number of companies acquired joint control over OÜ Vinni Biogaas and OÜ Oisu Biogaas (the decision in Estonian is available here). The decision concerns several energy markets, but most notably the markets related to biofuels. The ECA defined (a) production and wholesale of biomethane and (ii) retail of biomethane as two separate markets, but left open several questions concerning the substitutability of biomethane and natural gas.
Although biomethane can be used to substitute natural gas if its methane content is sufficient, the ECA ultimately left unanswered whether biomethane and natural gas belong on the same production and wholesale market. Instead, it only analysed the national wholesale market of biomethane (used both as transport fuel and in the natural gas network). As for the retail market, where biomethane is sold as transport fuel, the ECA indicated that for end-consumers, biomethane and compressed natural gas (CNG) are substitutable, whereas liquefied gases do not meet the same demand. However, for retailers of transport fuel, biomethane helps fulfil the biofuel requirements imposed on retailers, and therefore it is not fully substitutable with CNG. The ECA acknowledged that government subsidies and the possibility to trade with biomethane statistics promotes the use of biofuels, but ultimately did not take a definitive view on the market definition.
A calm year for the Latvian Competition Council
Year 2020 has been relatively calm in terms of the number of merger notifications submitted to the Latvian Competition Council (the Latvian CC). Between January and October, the Latvian CC has taken seven decisions in merger cases and a few more merger notifications are currently being examined. For comparison, in 2019, the Latvian CC received and assessed 18 notifications of planned mergers in 21 economic sectors.
In six out of the seven cases this year, the Latvian CC adopted the decision in the Phase I, i.e. within one month from the date of receipt of the notification. All examined transactions have been allowed without imposing binding obligations on the parties. From the competition law perspective, this means that the transactions assessed were not complex and the Latvian CC did not see any negative effects on competition.
The notified mergers concerned the markets for the production and distribution of mineral fertilizers, the rental and servicing of coffee machines, the distribution and retail of beer, telecommunications, financial sector, etc.
Lithuanian Competition Council gets wider discretionary powers
From June to October 2020, the Lithuanian Competition Council (the Lithuanian CC) issued only four merger clearance decisions. The notified mergers concerned the markets for the production and distribution of green energy, waste management, logistics and production of PET chips. All four mergers did not raise competition law concerns and merger clearances were issued in Phase I, i.e. within one month from submitting the notification to the Lithuanian CC that meets all the established requirements. As these mergers did not raise competition law concerns, the decisions of the Lithuanian CC are short and do not contain any relevant market definitions.
However, what is more interesting, is that currently two out of three transactions pending for the authority’s approval are examined in Phase II. One of these transactions is related to the telecommunications market, where Bitė Lietuva UAB, one of the largest telecommunications operators in Lithuania, intends to acquire Lithuanian Radio and Television Centre’s internet, data transmission and IPTV business under the Mezon brand. Mezon internet and data transmission services make up approximately 2% of the total Lithuanian telecommunications market. Another transaction concerns banking sector, where AS Citadele banka intends to acquire sole control and 100% of SIA UniCredit Leasing shares. Although the merger clearance decisions for this transaction were issued in Phase I in both Latvia and Estonia, it took several months before the Lithuanian authority accepted the merger notification and the examination of this concentration has been transferred to Phase II.
Lastly, it is important to mention that from 1 November 2020, the amendments to the Law on Competition will come into force which are also relevant for merger control. The new rules may prolong merger control proceedings, as the merger notification will have to meet the criteria set by the Lithuanian CC, and not the criteria explicitly provided for in legal acts. This will give companies less clarity on the requirements that the notification has to comply with, and more freedom for the Lithuanian CC to interpret whether a merger notification meets all of them. Also, the legislative amendments introduce the possibility for the Lithuanian CC to impose particularly short terms for the parties to provide answers to requests for additional information: a deadline for submitting such information must be not less than 1 working day. Consequently, it is possible that the Lithuanian CC would consider that 1 business day is an appropriate time limit to respond to its request for additional information. Moreover, fines will be significantly increased for implementing a notifiable concentration without a merger clearance or during the period of suspension, as well as for infringing merger conditions or mandatory obligations established by the authority. Also, while previously the maximum fine was 10% of the undertaking’s turnover generated in Lithuania in the preceding business year, the new rules allow to take into account the total worldwide turnover of the group.
Increased clarity regarding the applicability of Belarusian merger control to foreign transactions
The Ministry of Antimonopoly Regulation and Trade of the Republic of Belarus (the MART) has recently confirmed the need to obtain an approval for conclusion of transactions between non-Belarusian entities involving transfer of indirect control over a Belarusian entity. This clarification by the MART helps to shed light on the ambiguous issue of applicability of the Belarusian antimonopoly law (the Law) and merger control requirements to foreign-to-foreign transactions.
On its literal wording the Law applies to actions that are performed outside of Belarus and lead or might lead to prevention, restriction, or elimination of competition in Belarusian commodities markets. As the Law does not clearly define what constitutes such prevention, restriction, or elimination of competition, for a long time there has been a lack of clarity regarding whether a particular foreign-to-foreign transaction is subject to the merger filing in Belarus. As a result, the parties to such transactions have to either proceed with the transaction without the filing on their own risk, or apply to the MART with a request for clarifications, or opt for the full-fledged merger filing.
Following the recent clarification by the MART, the presence of a Belarusian subsidiary within the scope of a foreign-to-foreign transaction will be one of the definitive factors in assessing applicability of the Belarusian merger control requirements to the transaction. Namely, if the transaction leads to “acquisition of rights allowing to give mandatory instructions” to the Belarusian subsidiary, including indirectly via shareholding in its parent company, the transaction shall be filed to the MART, if not exempted under the de minimis rule.
While it depends on the specifics of each case how exactly the merger control rules are applied and how narrowly or widely the relevant markets can be defined, the practice of the local competition authorities can serve as a valuable starting point. If you have any merger control related questions or if you are curious about a specific market definition, do not hesitate to leave a comment or contact us directly! We will be back soon with an overview of the merger control related developments in the subsequent months.