October 29 2009
The first legislation establishing merger control in Lithuania was the Competition Law 1992. An amendment that entered into force on May 1 2004 brought the law's merger control regime - found in Section III, Articles 10 to 15 - closer to the EU model. The latest amendments to Section III were adopted on April 9 2009 and clarified the wording of the law without making material changes. The Competition Council's Regulation 45/2000 provides a more detailed framework for merger control, setting out the procedure for the submission and examination of a notification of concentration and the calculation of aggregate turnover.
The council is responsible for implementing the law and for overall competition policy. In addition, it performs state aid monitoring and other functions assigned to it by other legislation. The council assesses concentrations, conducts investigations into concentration cases and can block or allow concentrations.
The council's resolutions in merger cases may be challenged before the Vilnius District Administrative Court, whose decisions may be appealed to the Supreme Administrative Court.
Scope and definitions
Article 3 of the law defines a 'concentration' as: (i) a merger in which one or more undertakings which terminate their activity as independent undertakings are joined to the undertaking that continues its operation, or when a new undertaking is established from two or more undertakings that terminate their activity as independent undertakings; or (ii) an acquisition of control when the same natural persons that exercise control over one or more undertakings, acting on the basis of an agreement, jointly create a new undertaking or gain control over another undertaking by acquiring an enterprise or a part thereof, or all or part of the assets of an undertaking, or shares or other securities or voting rights, or by concluding contracts or in any other manner.
The creation of a joint venture resulting in a joint acquisition of long-term control over an existing or newly established undertaking is covered by the second part of the definition.
Under the law, the term 'control' means rights arising from laws or contracts that entitle a legal or natural person to exert a decisive influence over the activity of the undertaking, including (i) ownership or the right to use all or part of the assets of the undertaking, and (ii) other rights that confer a decisive influence on the decision making or the composition of the undertaking's managing bodies. A decisive influence exists where the controlling party implements (or is in a position to implement) its decisions regarding the controlled undertaking's economic activity or decision making or the composition of its managing bodies.
Following the accepted interpretation of the law, the acquisition of 25% or more of an undertaking's votes or assets may be considered an acquisition of control. However, this presumption may be rebutted on a case-by-case basis. An acquisition of under 25% may fall within the definition of 'control' if the minority interest holder can be shown to have decisive influence. Therefore, there is no exact percentage shareholding below which it is safe to assume that control will not arise in the absence of other structural links between the parties. The lowest shareholding that has been found to amount to control is believed to be 20%.
The law provides that the council must be informed of an intended market concentration and its permission must be obtained when (i) the combined aggregate turnover of the undertakings concerned was more than Lit30 million in the financial year before the concentration, and (ii) the aggregate turnover of each of at least two of the undertakings involved was more than Lit5 million over the same period.
The council has the right to control concentrations that fall below these thresholds. Within 12 months of the implementation of a concentration, the council may request merging parties to file a notification if a concentration falling below the jurisdictional thresholds is likely to create or strengthen a dominant position or result in a significant impediment to competition in the relevant market. This alternative means of exercising jurisdiction was designed to address competition concerns in small markets, where the turnover figures of firms with significant market power are below the level that would allow the competition authority to claim control over concentrations under the thresholds. The council exercises this right in only one or two cases a year.
All concentrations of undertakings that exceed the turnover thresholds must be notified to the council and must receive its approval. A concentration is not deemed to arise where commercial banks, other credit institutions, intermediaries in the public trading of securities, collective investment undertakings or management companies and insurance companies acquire 25% or more of the shares in an entity with a view to disposing of such shares in future, provided that:
Article 2(2) expressly states that the law also applies to the activities of undertakings registered outside Lithuania if such activities restrict competition in the Lithuanian market. Accordingly, Lithuanian merger control rules apply to all concentrations that fall within the turnover criteria, irrespective of where a concentration takes place and whether the parties concerned have subsidiaries or activities in Lithuania. However, if a party to a concentration is a foreign undertaking, its aggregate turnover is calculated as the sum of the income it receives from the sale of its products in the Lithuanian market.
Following the example set by the EU Merger Regulation (139/2004), Article 11(2) of the law requires that concentrations falling within the turnover thresholds be notified to the council before their implementation and following:
Similarly to Article 4(1) of the regulation, the Lithuanian regime requires parties to notify the council when they have demonstrated a clear intention to conclude an agreement or make a public bid. If they fail to comply with the concentration control rules, the council is entitled to apply the following penalties.
First, it may require the undertakings or controlling parties that have effected a concentration resulting in the establishment or strengthening of a dominant position (and the subsequent considerable reduction of competition in a relevant market), without notifying or obtaining permission from the council, to take action to restore the relevant entities to their previous position or to remove the consequences of the concentration. Such remedial action may include:
Second, the council may impose a fine of up to 10% of the annual worldwide turnover of the undertakings concerned.
In practice, breaches of the concentration control rules are rare and only a few undertakings have been fined for failure to notify. The largest such fine was Lit100,000. No fines have been imposed for failure to notify a foreign-to-foreign merger.
Responsibility for filing
As a general rule, notification must be submitted jointly by all of the undertakings participating in a concentration. In the case of acquisition of control, the notification is filed only by the parties acquiring control. The filing fee is Lit4,600.
Waiting periods and suspension of transactions
A concentration subject to notification cannot be implemented until it is cleared by the council; otherwise, implementing transactions (and actions performed by the undertakings and controlling parties which are deemed to implement the concentration) are considered invalid and have no legal force or effect. At the request of the undertakings or the controlling party, the council may permit individual acts of concentration until the adoption of a final decision, taking into account the consequences of suspension for the parties concerned, as well as the foreseeable influence on competition. Such permission may be subject to conditions and obligations.
Transactions and actions performed before permission is received are invalid. Closing before clearance may result in the imposition of fines of up to 10% of the undertakings' annual turnover. In addition, where there is sufficient evidence of infringement, the council can impose interim measures before the implementation of its final decision in order to prevent substantial or irreparable damage to the interests of undertakings or the public interest. In particular, the council has the right to require the undertakings to cease an illegal activity and, subject to obtaining a warrant from a judge of the Vilnius District Administrative Court, to require the undertakings to perform actions to prevent irreparable consequences or serious damage to other undertakings or the public interest.
Since 2000 no undertakings have been penalized for closing before clearance. This is probably because the law allows parties to request approval of individual actions before clearance, providing an option for undertakings in urgent circumstances.
The risk of a foreign-to-foreign merger being blocked is low, but if the question of dominance or significant impediment to competition arises, the council may make clearance subject to behavioural or structural remedies, including a 'hold separate' arrangement.
Preparing a filing
Article 11 of the law provides general filing requirements, while the council's Merger Regulation establishes detailed rules for filing according to a standard notification form. Pursuant to Article 11, the notification must include:
The standard notification form provided in the regulation is similar to Form CO (used for notifying mergers with an EU dimension), but requires more detailed and sophisticated analysis of the relevant markets that might be affected as a result of the concentrations performed. However, if the council so agrees, the scope of the notification can be reduced in most transactions that create no significant competition issues.
The council has four months to examine the notification of concentration submitted in accordance with the established requirements. If commitments are offered, the examination period may be extended for one month at the request of the notifying parties.
The time limit begins on the day after the council receives a correctly completed notification. The council must immediately notify the parties in writing if a notification does not comply with its requirements.
The law does not explicitly authorize the council to issue advance rulings, but there is usually no need for this because the council generally clears mergers within one month of notification. However, parties wishing to accelerate the official clearance procedure may enter into pre-merger consultations to reduce the scope of the notification and clarify issues that the council will consider important in the formal examination process. Cooperating with the council and providing all necessary material during the first examination phase will increase the chances of obtaining a timely final decision.
Having received a notification of concentration, the council publishes a notice in the annex of the Official Gazette, indicating the nature of the concentration and identifying the parties concerned. The notification is assigned to the department responsible for concentration cases. The investigation of a particular concentration is usually performed by one staff member appointed by the head of the department. The official examines the notification on the basis of the data contained in the filing. If necessary, written and oral requests may be made to the notifying parties for clarification or missing information. The council sometimes sends questionnaires to other undertakings (eg, the notifying parties' competitors or clients) in order to obtain a clearer picture of the relevant market.
The initial examination period may last no more than one month. Thus, within one month of receipt of a correct notification of concentration, the council must either allow the concentration or decide to begin a second-phase examination. The second phase may last for up to three months. Both examination periods may be extended by one month if the council intends to clear a concentration subject to commitments from the parties.
The notifying parties must be informed of all decisions in writing. If the council does not issue a decision within the required timeframe or if the notifying parties are not informed of the decision within four months of the date of submission of a correct notification, the undertakings or controlling parties may complete the concentration according to the conditions indicated in the notification.
Although the law allows for two phases of examination, which may take up to four months in total, the council usually clears most mergers within one month.
Substantive test for clearance
Having completed its examination of a notification, the council must:
The substantive test for clearance prohibits concentrations that create or strengthen a dominant position or significantly impede competition in the relevant market. The wording of the Lithuanian test differs slightly from that of Article 2(3) of the EU Merger Regulation, which refers to concentrations that 'significantly impede effective competition', but this should not be taken to indicate a difference in interpretation.
Lithuanian competition rules define 'dominant position' as a position of one or more undertakings in a relevant market (i) in which the undertakings do not directly face competition, or (ii) that enables the undertakings to exercise unilateral and decisive influence in the relevant market by effectively restricting competition. The law contains a presumption of market domination based upon high market share. Thus, unless the parties demonstrate otherwise, an undertaking with a market share of 40% or over will be deemed to have a dominant position in the relevant market. Moreover, each of a group of three or fewer undertakings with the largest share of the relevant market that jointly hold 70% or more of the relevant market will be deemed to enjoy collective dominance, unless they can prove otherwise.
No special substantive test is applied for joint ventures. However, in practice the council scrutinizes the possible coordinated effects between the undertakings concerned.
Theories of harm
The Guidelines on the Establishment of a Dominant Position provide a non-exhaustive list of concerns that the competition authority may address. The council is charged with assessing sole and collective market dominance (the latter including the assessment of coordinated effects and unilateral effects). The guidelines analyze these competition-related concerns in greater detail. Moreover, they contain a general statement allowing the council to take into account other factors that may be relevant in assessing the probability of a significant impediment to competition. Thus, invoking other theories of harm, such as conglomerate effects or vertical foreclosure, is not excluded.
In practice, the council usually invokes the market dominance test. Thus, this test may be regarded as the default basis of the council's analysis. In vertical concentration cases the council tends also to assess possible foreclosure in upstream or downstream markets.
The council's decision to block a merger may be based only on competition issues (ie, the creation or strengthening of dominance and the restriction of competition), although notifying parties sometimes use additional factors (eg, socio-economic advantages) to justify their mergers.
The guidelines allow the regulator to take account of submissions from undertakings on economic efficiencies, the benefits of which may be passed on to consumers. However, neither this provision nor official practice offers clear guidance on the role of efficiencies in the merger evaluation process, since cases involving this argument are rare.
The council can begin an investigation on its own initiative where it has reasonable grounds to believe that a concentration has been put into effect in violation of the merger control rules. In cases where the council discovers that a transaction caught by the notification requirements has been completed or that parties have breached the conditions of implementing a concentration, it can:
The council may authorize a concentration subject to conditions and obligations accepted by undertakings (or controlling parties participating in the concentration) to prevent the creation or strengthening of a dominant position. Such conditions and obligations may be behavioural, structural or both. The most common structural remedy imposed by the council is the divesture of an undertaking. However, the council has also imposed behavioural remedies, such as:
Divestments or other remedies imposed by the council usually involve general conditions that briefly describe the actions to be performed by the undertakings concerned. The usual deadline for the performance of such divestments is about six months, with the option of prolonging the deadline for closing. The undertakings concerned are usually required to perform behavioural remedies within two years.
The council has applied both structural and behavioural remedies to resolve competition-related concerns arising from foreign-to-foreign mergers. However, such remedies have been imposed only on merging non-Lithuanian companies with significant presence in the Lithuanian market through their local subsidiaries or related companies. The most common structural remedy imposed by the council is the divesture of undertakings. In one of the most controversial cases, where the merging parties had a significant presence in the relevant market, the council imposed behavioural remedies, including:
Lithuanian merger control rules provide for the direct involvement of third parties with certain rights in certain cases.
Interested parties have two weeks from receipt of notification being announced in the annex of the Official Gazette to submit their views, in writing or orally, concerning the intended concentration. If the council receives objections from interested parties, its final decision can be adopted after the initial consideration at its procedural meeting. Notice must be sent to the notifying party and to the interested parties whose written objections have been received regarding the expected decision and date of the procedural meeting, as well as the deadline for the submission of additional requests or explanations. Upon receipt of the notice of examination, the parties are entitled to:
Third parties whose interests have been adversely affected by restrictive practices have the right to request that the practices be investigated. Such practices may include (i) the implementation of a concentration without notification, without obtaining permission or in breach of the established conditions and obligations, and (ii) the continuation of a concentration during a suspension period. The council must decide on such requests within 30 days.
Third parties may participate in the hearing of restrictive practices cases as the initiators of the investigation. They have a general right to be heard and to submit written or oral explanations, and must be given access to the documents of the case (except those that contain commercial secrets). They have a right to appeal the council's decision to the Vilnius District Administrative Court.
Undertakings that violate competition rules must compensate third parties for damages caused. Such parties have a right to apply to the competent court with an appropriate claim.
The operative part of the resolutions adopted by the council after examining notifications of concentration must be published, as must resolutions issued in infringement cases brought under the law or other concentration regulations. In addition, such information is made available on the council's website.
Although in certain cases third parties may have access to the material used to assess concentrations, the law contains a general clause on the protection of commercial secrets obtained by the council and its administrative staff during the examination procedure. The law specifies that commercial secrets must be kept confidential and may be used only for examination purposes, unless the undertaking specifically agrees otherwise.
The notifying undertaking or any other party that submits information to the council is required to identify the material that it considers to be confidential. Council officials are entitled to request such party to provide a separate non-confidential version of the document and attach a brief description of those parts of the document which are deemed to be confidential.
Foreign antitrust authorities
There are no specific statutory provisions on the council's cooperation with other competition authorities. Outside the remit of national competition rules, such cooperation is determined by EU law, including the EU Merger Regulation and the European Commission's notice on case referral in respect of concentrations.
The council's decisions in merger cases may be challenged before the Vilnius District Administrative Court no later than 20 days after receipt of the decision or its publication in the Official Gazette. The decision can be challenged on both procedural and substantive grounds. The court's decision may be appealed to the Supreme Administrative Court within 14 days.
Since 1996 only a few council decisions in merger cases have been appealed and in nearly all cases the claimants withdrew their appeals before the start of the public hearing on the merits of the case. Thus, court practice provides no clear guidance on the timeframe for an appeal against a merger decision. However, other cases involving competition-related matters suggest that appeal hearings before the Vilnius District Administrative Court and the Supreme Administrative Court might last between eight and 12 months.
In 2008 the council received a total of 54 notifications of concentration. Of these, 52 were approved unconditionally and four were approved with conditions and obligations. A total of 13 clearances were issued to foreign undertakings. In 2008 the council imposed the largest fine to date for failure to notify a concentration and required the undertakings concerned to restore the pre-existing position concentration - the first time it has done so. The concentration concerned the acquisition of lease rights to certain retail premises by one of the largest retail networks, owned by Maxima LT, UAB. The council fined Maxima Lit100,000. After finding that the concentration could have significantly impeded competition in the relevant markets, the council ordered Maxima to terminate certain lease agreements to restore the position before the concentration.
For further information on this topic please contact Marius Juonys or Laura Šlepaite at Lideika, Petrauskas Valiunas ir partneriai LAWIN by telephone (+370 5 268 1888), fax (+370 5 212 5591) or email (email@example.com).
An earlier version of this Overview first appeared in Getting the Deal Through: Merger Control 2010.
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