Lithuania: Merger Control In Lithuania 2010

Article by Marius Juonys and Laura Slepaite

Legislation and jurisdiction

1 What is the relevant legislation and who enforces it?

The first legislation establishing merger control in Lithuania was the 1992 Law on Competition (the Law on Competition). By the amendment of 15 April 2004, which entered into force on 1 May 2004, the Law on Competition has brought the merger control regime, found in section III (articles 10 to 15), closer to the EC model. The latest amendments to section III adopted on 9 April 2009 did not bring any material changes to the Lithuanian merger control regime but rather clarified some wording used in the Law. A more detailed regulation of concentrations is in Resolution No. 45 of 27 April 2000 of the Competition Council on the approval of the procedure for submission and examination of notification on concentration and of calculation of aggregate turnover (the Merger Regulation).

The authority responsible both for implementing the Law on Competition and for overall competition policy is the Competition Council (the Council). In addition, the Council can perform state aid monitoring and other functions assigned to it by other legislation. The Council undertakes control of concentrations, conducts investigations into concentration cases and can either prohibit or permit concentrations.

The Council's resolutions in merger cases may be challenged before the Vilnius district administrative court. Decisions of the latter may be appealed to the Supreme Administrative Court of Lithuania.

2 What kinds of mergers are caught?

The Law on Competition introduces a concept of 'concentration' that includes, but is not limited to, mergers. Article 3 of the Law on Competition defines a 'concentration' as:

• 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

• acquisition of control, when one and the same natural person, or the same natural persons, that exercise control over one or more undertakings (or an undertaking or several 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 a part of the assets of an undertaking, or shares or other securities, voting rights, or by concluding contracts or in any other manner.

3 Are joint ventures caught?

The creation of a joint venture (both full-function and non-full function) resulting in a joint acquisition of control over an existing or newly established undertaking on a long-lasting basis is covered by the second part of the definition of the concept of 'concentration'.

4 Is there a definition of 'control' and are minority and other interests less than control caught?

Under the provisions of the Law on Competition the term 'control' means any 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:

• ownership or the right to use all or part of the assets of the undertaking; and

• other rights that confer a decisive influence on the decision-making or the composition of the undertaking's managing bodies.

According to the Law on Competition, a 'decisive influence' exists where the controlling person implements, or is in the position to implement, its decisions regarding the economic activity or the decision- making or the composition of the managing bodies of the controlled undertaking.

Following the accepted interpretation of the Law on Competition, the acquisition of 25 per cent or more of votes or assets in an undertaking may be considered an acquisition of control. However, this presumption may be rebutted on a case-by-case basis. On the other hand, acquisition of less than 25 per cent of votes or assets might also fall within the definition of control, if such a minority interest holder could be shown to have a 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. To the best of our knowledge, the lowest shareholding that has been found to amount to control was 20 per cent.

5 What are the jurisdictional thresholds?

Under the provisions of the Law on Competition, the Council must be informed of the intended market concentration and its permission must be obtained when the combined aggregate turnover of the undertakings concerned is more than 30 million litas in the last financial year prior to concentration, and the aggregate turnover of each of at least two undertakings concerned is more than 5 million litas in the last financial year prior to concentration.

The Council has the right control concentrations that fall below the above-indicated turnover thresholds. The Council may, within 12 months after the implementation of a concentration, request merging parties to file a notification if it is likely that a concentration falling below the jurisdictional thresholds will 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 so-called 'small markets', where 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 mentioned above. The Council uses this right on average for one to two cases per year.

6 Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

All concentrations of undertakings exceeding the turnover thresholds defined above must be notified to and receive approval from the Council.

A concentration shall not be deemed to arise where commercial banks, other credit institutions, intermediaries of public trading in securities, collective investment undertakings or management companies and insurance companies acquire 25 per cent or more of the shares with a view to disposing of these shares in the future, provided that:

• they do not exercise voting rights in respect of those shares;
• disposal of shares takes place within one year of the date of acquisition; and
• the acquiring undertaking informs the Council about such acquisition within a one-month period.

7 Do foreign-to-foreign mergers have to be notified and is there a local effects test?

Article 2(2) of the Law on Competition expressly states that the Law on Competition shall also apply to the activities of undertakings registered beyond the territory of Lithuania if such activities restrict competition in the internal market of Lithuania. Accordingly, Lithuanian merger control rules apply to all concentrations that fall within the turnover criteria described above, irrespective of where a concentration takes place and whether the parties concerned have any subsidiaries or activities in Lithuania. Notably, however, if a party to a concentration is an undertaking of a foreign country, its aggregate turnover is calculated as the sum of income received from the sale of its products in the Lithuanian market.

Notification and clearance timetable

8 What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?

Following the example set by the new EC Merger Regulation, article 11(2) of the Law on Competition requires that concentrations falling within the turnover thresholds be notified to the Council prior to their implementation and following the presentation of an offer to conclude an agreement or acquire shares or assets; authorisation to conclude an agreement; conclusion of an agreement; or the acquisition of ownership rights or the right to dispose of certain assets.

Similarly to article 4(1) of the new EC Merger Regulation, notification may also be made where parties have demonstrated a clear intention to conclude an agreement or make a public bid.

In case of failure to comply with the concentration control rules, the Council is entitled to apply the following sanctions:

• to oblige the undertakings or controlling persons that have effected a concentration resulting in the establishment or strengthening of a dominant position (and subsequent considerable reduction of competition in a relevant market) without notifying (or obtaining permission from) the Council to carry out actions to restore the previous situation or to remove the consequences of concentration; these actions may include selling all or part of the enterprise, all or part of the assets of the undertaking or all or part of its shares, reorganising the enterprise and terminating or amending contracts, or establishing any other terms and conditions necessary to meet the above obligations; or

• to impose a fine of up to 10 per cent of the annual worldwide turnover of the undertakings concerned.

In practice, as breaches of the concentration control rules are quite rare, since 2000 there have been few cases where undertakings received fines for failure to notify. The largest fine imposed for failure to notify amounted to 100,000 litas. No fines have been imposed for failure to notify foreign-to-foreign mergers.

9 Who is responsible for filing and are filing fees required?

As a general rule, notification must be submitted jointly by all the undertakings participating in a concentration. In the case of acquisition of control, the notification is filed only by the persons acquiring control.

The Law on Competition requires payment of a filing fee. The government has set the filing fee at 4,600 litas.

10 What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?

A concentration subject to notification cannot be implemented before it is cleared by the Council. Any implementing transactions and actions performed by the undertakings and controlling persons which are constituted as implementing the concentration are considered to be invalid with no legal force and effect. At the request of the undertakings participating in concentration or of the controlling person, the Council may permit individual acts of concentration until the adoption of a final decision, taking into account the consequences of suspension of concentration to the persons concerned, as well as a foreseeable influence on competition. Such permission may be subject to certain conditions and obligations.

11 What are the possible sanctions involved in closing before clearance and are they applied in practice?

As mentioned above, any transactions and actions of the undertakings and controlling persons performed prior to receiving permission for the concentration are considered to be invalid, with no legal force and effect. Closing before clearance may also result in the imposition of fines of up to 10 per cent of the annual turnover of the undertakings concerned (see above). In addition, where there is sufficient evidence of infringement of the Law on Competition, the Council, to prevent substantial or irreparable damage to the interests of undertakings or to the public interest, has the right to apply any interim measures necessary for the implementation of the final decision of the Council. In particular, the Council has the right:

• to require the undertakings to cease an illegal activity; and
• upon being issued with a warrant by the judge of the Vilnius district administrative court, to require the undertakings to perform certain actions if failure to perform the same would result in serious damage to other undertakings or the public interest or incur irreparable consequences.

Since 2000 there have been no cases where undertakings were sanctioned for closing before clearance. This may be explained by the fact the Law on Competition provides a possibility to request separate actions before clearance. Thus, in cases of urgency, the undertakings concerned opt for that possibility.

12 What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?

As practice shows, the risk of a foreign-to-foreign merger being blocked is rather low, but it can be expected that if the question of dominance or significant impediment of competition arose, the Council might make clearance subject to either behavioural or structural remedies, including a 'hold separate arrangement'.

13 Are there any special merger control rules applicable to public takeover bids?

The Law on Competition does not provide any special procedural merger rules applied to public takeovers.

14 What is the level of detail required in the preparation of a filing?

Article 11 of the Law on Competition provides general filing requirements, while the Merger Regulation establishes detailed rules for filing according to a standard notification form.

Pursuant to article 11 of the Law on Competition, the notification of concentration must include:

• registration information of the undertakings participating in the concentration;
• the reasons for, and objectives of, the intended date of implementation of the concentration;
• a description of the method of concentration;
• annual financial accounts of each undertaking participating in the concentration for the preceding three years prior to concentration;
• information on the enterprises owned by each undertaking participating in the concentration or the enterprises owned by the controlling persons as well as information on other enterprises in which the undertaking owns shares;
• a description of transaction; and
• a description of activities of each of the undertakings participating in the concentration and evaluation of their market share in a relevant market.

The standard notification form established by the Merger Regulation, which is to a great extent similar to form CO used for notifying mergers with a Community dimension, requires more detailed and sophisticated analysis of the relevant markets that might be affected as a result of concentrations performed. On the other hand, by agreement with the Council, it is possible to reduce the scope of the notification in most transactions that create no significant competition issues.

15 What is the timetable for clearance and can it be speeded up?

The Council has four months in total to examine the notification of concentration submitted in accordance with the established requirements. If the commitments are offered the examination period may be extended for one additional month at the request of the notifying parties. The time limit begins on the next day after receipt of a notification that complies with these requirements. The Council immediately notifies the parties, in writing, if the notification on concentration does not comply with the established requirements.

The Law on Competition does not explicitly authorise the Council to issue advance rulings. In practice, however, usually there is no necessity of such authorisation because the Council usually clears the merger within one month after receipt of the notification. In spite of this, parties interested in speeding up the official clearance procedure may enter into pre-merger consultations with the competition authority seeking to reduce the scope of the notification as well as to clarify issues that the Council would consider important in the process of formal examination. Of course, cooperation with the Council, as well as prompt provision of all necessary material during the first examination phase, would increase the chances of obtaining a quicker final decision.

16 What are the typical steps and different phases of the investigation?

Having received a notification of concentration, the Council publishes a notice in the Annex of the Official Gazette indicating the nature of concentration and identifying the parties concerned.

The notification is assigned to the Council subdivision responsible for handling concentration cases. The investigation of a particular concentration is usually performed by one staff member appointed by the head of the above-mentioned subdivision. This official examines the notification on the basis of the data contained in the filing. If necessary, written or oral requests may be addressed to the notifying parties asking for clarification of some details or for additional missing information. Sometimes the Council sends questionnaires to other undertakings (eg, competitors or clients of the notifying parties) for the purposes of obtaining a clearer picture of the relevant market.

The Law on Competition establishes two phases of examination of the concentration. The initial examination period may not last more than one month. Thus, within one month of receipt of a proper notification of concentration, the Council either permits the concentration or adopts a decision for further examination of the concentration. Such further examination may last up to three months. The examination period may be extended for an additional month (both in the first and second phase) if the Council intends to clear a concentration subject to certain commitments from the parties.

The persons having submitted the notification are informed, in writing, of any decisions. If, within the defined terms after the date of receipt of a proper notification (one month for the initial examination plus (if needed) another three months for further examination), the Council does not issue a decision, or, if the persons having provided such a notification are not informed of the decision within four months of the date of receipt of a proper notification, the undertakings or controlling persons have the right to effect the concentration according to the conditions indicated in the notification.

Although the Law on Competition establishes two phases of examination of the concentration, which may take up to four months in total, the Council usually clears most mergers within one month.

Substantive assessment

17 What is the substantive test for clearance?

Having completed its examination of a notification, the Council will make one of the following decisions:

• to permit the concentration as indicated in the notification;
• to permit the concentration by establishing conditions and obligations regarding the concentration on the undertakings or controlling persons participating in the concentration to prevent the creation or strengthening of a dominant position; or
• to refuse to grant permission to effect the concentration by imposing obligations on the undertakings or controlling persons concerned to undertake actions to restore the previous situation or remove the consequences of the concentration.

The Lithuanian substantive test for clearance prohibits any concentrations that create or strengthen a dominant position; or result in a significant impediment of competition in the relevant market. The wording of the Lithuanian test differs slightly from that of the new EC Merger Regulation, article 2(3) of which refers to 'significantly imped[ing] effective competition', but this difference in wording should not represent a difference in interpretation.

As to the dominance criterion, Lithuanian competition rules define 'dominant position' as a position of one or more undertakings in the relevant market in which the undertaking(s) does not directly face competition, or that enables the undertaking(s) to exercise a unilateral decisive influence in the relevant market by effectively restricting competition. The Law on Competition contains a presumption of market domination based upon high market share. Thus, unless proved otherwise, an undertaking with a market share of not less than 40 per cent shall be considered to have a dominant position in the relevant market. Moreover, unless proved otherwise, each of a group of three, or a smaller number of undertakings with the largest share of the relevant market, jointly holding 70 per cent or more of the relevant market, shall be considered to enjoy a (collective) dominant position.

18 Is there a special substantive test for joint ventures?

No special substantive test is applied for joint ventures. In practice, however, the Council scrutinises the possible coordinated effects between the undertakings concerned.

19 What are the 'theories of harm' that the authorities will investigate?

The Guidelines on the Establishment of a Dominant Position provide an open-ended list of concerns which may be addressed by the competition authority. Pursuant to the Guidelines, the Council is supposed to assess sole and collective market dominance (the later implies assessment of coordinated effects) and unilateral effects. Analysis of these competition-related concerns is described in the Guidelines on the Establishment of a Dominant Position in greater detail. Besides, the Guidelines contain a general statement allowing the Council to take into account any other factor which may be relevant in assessing the probability of a significant impediment to competition. Thus, the possibility to invoke other 'theories of harm', such as, for example, conglomerate effects or vertical foreclosure is not ruled out.

In practice, the Council usually invokes the market dominance test. Thus, this test might be regarded as the centre of gravity of the Council's analysis. In cases of vertical concentrations, the Council also used to assess possible foreclosure of upstream or downstream markets.

20 To what extent are non-competition issues (such as industrial policy or public interest issues) relevant in the review process?

Formally, the Council's decision to block a merger may only be based on competition issues (ie, the creation or strengthening of dominance and the restriction of competition), although notifying parties sometimes use additional motivation (eg, socio-economic advantages) to justify their mergers.

21 To what extent does the authority take into account economic efficiencies in the review process?

The Guidelines on the Establishment of a Dominant Position adopted by the Council provide for the possibility of taking into account submissions of the undertakings concerned regarding economic efficiencies, the benefits of which may be passed on to consumers. However, neither the Guidelines nor the practice provide any clear guidance as regards the role of efficiencies in the merger evaluation process, as cases containing such justification are rare.

Remedies and ancillary restraints

22 What powers do the authorities have to prohibit or otherwise interfere with a transaction?

The Council has the right to start investigations on its own initiative where there are reasonable grounds for believing that a concentration has been put into effect in violation of the merger control rules.

In cases where the Council discovers an executed transaction subject to notification, or conditions and obligations for implementing a concentration are breached, it can apply the following sanctions:

• oblige the undertakings or controlling persons that have effected a concentration resulting in the establishment or strengthening of a dominant position and subsequent considerable reduction of competition in a relevant market without notifying the Council or obtaining permission from the Council to carry out actions to restore the previous situation or to remove the consequences of concentration;
• impose fines on undertakings (see above); and
• apply interim measures.

23 Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?

As mentioned above, the Council may permit concentration by establishing conditions and obligations relating to the concentration on the undertakings or controlling persons participating in the concentration to prevent the creation or strengthening of a dominant position. Such conditions and obligations may be both of a behavioural and structural nature. The most common structural remedy imposed by the Council is the divesture of an undertaking. However, in practice, the Council has also imposed behavioural remedies such as, a requirement of transparent pricing and arm's length dealing with related undertakings, a prohibition on applying discriminatory prices and imposing exclusive purchase obligations, as well as a requirement to provide the possibility of unilateral termination of a contract.

24 What are the basic conditions and timing issues applicable to a divestment or other remedy?

Divestments or other remedies imposed by the Council usually contain rather general conditions briefly describing actions required to be performed by the undertakings concerned. The usual deadline set for the performance of such divestment is about six months with a possibility to prolong the deadline for closing. Undertakings concerned are usually required to perform behavioural remedies within two years.

25 What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?

The Council applied both structural and behavioural remedies to resolve competition-related concerns resulting from foreign-to-foreign mergers. However, the remedies were imposed only in situations where merging non-Lithuanian companies had significant presence on Lithuanian markets 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 such as, for example, a requirement of transparent pricing, a prohibition on applying discriminatory prices and imposing exclusive purchase obligations as well as a requirement to provide the possibility of unilateral termination of a contract.

26 In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?

A clearance decision also covers the ancillary restrictions which are directly related and necessary to the implementation of the concentration. In its assessment of the ancillary restraints the Council relies on the principles entrenched in the Commission Notice on restrictions directly related and necessary to concentrations.

Involvement of other parties or authorities

27 Are customers and competitors involved in the review process and what rights do complainants have?

Lithuanian merger control rules provide for the direct involvement of third parties with certain rights in the following cases.

All interested persons within two weeks from the day of the publication of notice about the receipt of notification in the Annex of the Official Gazette may submit their ideas, in writing and orally, concerning the intended concentration to the Council. If objections by interested persons with respect to the intended concentration are submitted to the Council, the final decision of the Council can be adopted after the first consideration at the procedural meeting of the Council. In this case, notice must be sent to the notifying person and to the interested persons who have submitted written objections to the Council regarding the anticipated decision and date of the procedural meeting of the Council as well as term for submission of additional requests or explanations. The aforementioned persons, upon receipt of the notice of examination of concentration, are entitled to have access to the material concerning examination of the concentration, except information which is a commercial secret of other undertakings; to submit clarifications to the Council, or to request to participate and to be heard at the procedural meeting of the Council.

Third parties whose interests have been violated due to restrictive practices have the right to request an investigation of such restrictive practices. In concentration cases, such restrictive practices may include implementation of a concentration without notification, without obtaining permission or in breach of the established conditions and obligations, as well as the continuation of the concentration during a suspension period. A decision on such requests should be made by the Council within 30 days.

Third parties may participate in the hearings of restrictive practices cases as the initiators of the investigation. They have a general right to be heard and to give written or oral explanations. Third parties participating in hearings are given access to the documents of the case, other than those containing the commercial secrets of another undertaking.

Third parties who consider that their rights have been violated have the right to appeal to the Vilnius district administrative court against the resolutions of the Council.

Undertakings that violate competition rules must compensate damages caused to third parties. Damaged third parties have a right to apply to a relevant court with a corresponding claim.

28 What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?

As stated above, all publications about receipt of notifications are published in the Annex of the Official Gazette. Similarly, the operative part of resolutions adopted by the Council after examination of notifications of concentration, as well as resolutions adopted upon the hearing of the case in the event of an infringement of the Law on Competition or other concentration regulations are published. In addition they are published on the Council's website at www.konkuren.lt.

Although in certain cases third parties may have access to the material in examinations of concentrations, the Law on Competition contains a general clause on the protection of commercial secrets obtained by the Council and its administrative staff during the examination procedure. The Law on Competition specifies that commercial secrets must be kept confidential and, in the absence of the undertaking's consent, may be used only for examination purposes.

The notifying undertaking or any other person that submits information to the Council is required to identify the material it considers to be confidential. Officials of the Council are entitled to request such person 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.

29 Do the authorities cooperate with antitrust authorities in other jurisdictions?

There are no specific statutory provisions on the cooperation of the Council with other competition authorities. Outside the remit of national competition rules, the Council's cooperation with other competition authorities is defined by EC law, including the EC Merger Regulation and the Commission Notice on case referral in respect of concentrations.

30 Are there also rules on foreign investment, special sectors or other relevant approvals?

There are special rules governing mergers of banks and other financial institutions, investment and insurance undertakings and broadcasters. Usually such special rules deal with aspects of mergers that are unrelated to competition and establish requirements for approval of mergers by special regulatory institutions.

Under the Law on Banks, bank mergers and acquisitions of various degrees of shareholding (voting rights) in banks are subject to approval by the Bank of Lithuania. The permission of the Bank of Lithuania shall be attached to the notification. Acquisitions of various degrees of shareholding (voting rights) in financial institutions other than banks are also controlled under the Law on Financial Institutions.

Under the Law on Collective Investment Undertakings, acquisitions of various degrees of shareholding in managing companies require the consent of the Securities Commission.

Under the Law on Insurance, mergers of insurance undertakings and acquisitions of various degrees of shareholding (voting rights) in insurance undertakings are subject to approval by the insurance supervisory authority.

Pursuant to the Law on the Provision of Information to the Public, concentrations in the media sector are subject to special rules to maintain media diversity. Accordingly, changes of a controlling interest in a broadcasting (rebroadcasting) undertaking must be approved by the Radio and Television Commission.

Judicial review

31 What are the opportunities for appeal or judicial review?

The Council's decisions in merger cases may be challenged before the Vilnius district administrative court not 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. Within 14 days of adoption of a decision by the Vilnius district administrative court, it may be appealed before the Supreme Administrative Court of Lithuania.

32 What is the usual time frame for appeal or judicial review?

Since 1996, the Council's decisions in merger cases have been appealed only a few times; however, in most of the instances claimants withdrew their appeals before the commencement of the public hearing on the merits of the case. Thus, in the absence of a sufficient number of precedents, court practice provides no clear guidance on time frame as far as the hearing of the appeals against merger decisions is concerned. However, experience in other cases involving competition- related matters suggests that hearing of the appeal in the Vilnius district administrative court and the Supreme Administrative Court of Lithuania might take up to between eight and 12 months.

Enforcement practice and future developments

33 What is the recent enforcement record of the authorities, particularly for foreign-to-foreign mergers?

In 2008 a total of 54 notifications of concentration were received by the Council. Of these, 52 were approved unconditionally and four were approved with conditions and obligations. A total of 13 clearances were issued to foreign undertakings.

34 What are the current enforcement concerns of the authorities?

The Annual Report of the Council for 2008 raises particular concern with regard to concentrations in retail sector performed by way of acquisition or lease premises where retail activities were previously performed.

35 Are there current proposals to change the legislation?

Currently no official proposals for amendment of Lithuanian merger control regime have been submitted. However, some changes in this regard are anticipated as a result of the work of the Sunrise Committee on Competition under the head of the government, which was established in view of the economic crisis to improve the operating conditions for businesses.

Originally published by Getting the Deal Through.

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