General overview
What legislation governs M&A activity within your jurisdiction?
In Latvia, the legislation governing M&A activity is the:
Commercial Law;
Competition Law;
Law on Joint-Stock Companies;
Law on Limited Liability Companies;
Law on the Financial Instruments Market; and, if applicable,
Law on Privatization and any other privatization regulations, if applicable to any of the merging entities.
Labour legislation may be applicable in so far as successor rights are concerned.
What was the impact of recent legislative changes on the nature and scope of the M&A activity?
A number of Latvian companies originally registered under the Law on Joint-Stock Companies or the Law on Limited Liability Companies have not yet re-registered under the relatively recent Commercial Law. A merger may have the effect of triggering an immediate re-registration requirement, whereas in some instances it might be possible for a company to delay re-registration until December 31 2004.
The Competition Law, while certainly not new, is expected to be more vigorously enforced after accession to the EU on May 1 2004.
Otherwise, it is unlikely that the nature and scope of the M&A activity has been materially impacted by any recent legislative changes.
What were the most significant M&A transactions within your jurisdiction over the past year?
Swedish investment bank East Capital acquired over 50% of the Swedish Fund manager Amber Venture Partners from Swedbank, resulting in 100% ownership by East Capital.
Linstow International AS acquired the asset portfolio of InvestaSource.
AS Rigas Piena Kombinats acquired Demyanskiy Molokozavod in Russia's Novgorod region;
Rupert Murdoch News Corporation acquired 40% of AS Latvijas Televizija;
Skanska Konstrukcija has been acquired by Panevezio Keliai of Lithuania, and is operating under the name, Constructus.
Lassila & Tikanoja of Finland has acquired Hoetika ATU, Latvia's main waste disposal firm.
Acquisition of Amberholding Latvia (Latvian Tugboat service provider) by Baltuysky Flot.
Acquisition of Globuss by Kesko.
Acquisition of Plus Punkts from Greis by Ifoba Establishment (Liechtenstein).
Acquisition of a controlling interest in joint-stock company Lindekss by Baltic Sea Port.
Acquisition of a smaller retailer by ICA.
The merger of Telia and Sonera has resulted in TeliaSonera owning 49% of Lattelekom, the national fixed line telecommunications operator.
Acquisition of 66% of shares of Mobil Asfalts from NCC by ACB, Latvia's largest road construction company.
German-owned Moduls-Riga acquired 75% of Velve (construction company).
How and to what extent is foreign involvement in M&A transactions within your jurisdiction regulated/restricted?
In general, foreign involvement in M&A transactions in Latvia is not restricted. Exceptions may exist where the target acquisition is an entity requiring a licence to perform certain services.
Due diligence
What are the principal disclosure requirements in a typical M&A transaction?
Disclosure requirements depend on the type of a M&A transaction and the target company involved. In the case of listed companies, the Finance and Capital Market Commission and the Stock Exchange must be notified. If competition issues might be triggered, the Competition Council must be notified.
If there is a change of shareholders in a limited liability company, the Commercial Register must be notified so that a respective transfer of the title of shares is registered with the Commercial Register.
To what extent do disclosure requirements achieve market transparency?
The disclosure requirements provided in the legislation ensure enough market transparency for all market participants. In the case of listed companies, all relevant information that might have an impact on the commercial activity or the stock price of the target company must be submitted to the stock exchange. But in the case of limited liability companies, all information related to shareholders (including information regarding the share capital and officials) is registered with the Commercial Register and is publicly available.
How significant is the issue of prospectus liability in a typical M&A transaction?
Prospectus liability is triggered only by the issue of stocks in the regulated market. The Law on the Financial Instruments Market provides that an investor can claim damages incurred due to false or incomplete information included in the prospectus by bringing a lawsuit against the persons indicated in the prospectus and those responsible for the accuracy of the prospectus information.
How did recent M&A transactions and/or legislation deal with the issue of material adverse change clauses?
The legislation does not deal with the issues of material adverse change clauses. But the issues of material adverse change clauses are dealt with by including respective clauses in the merger or acquisition documentation on the initiative, and at the discretion of, the parties.
What are the key unresolved issues within your jurisdiction?
Taking into account that the legislation has been adopted very recently, almost no court cases regarding M&A have identified any unresolved issues within the jurisdiction. Moreover, with the accession to the EU on May 1 2004 the EU regulations as well as directives will be applicable and, thus, will possibly solve some issues that have not yet been identified.
Takeovers
Are there any specific regulations and/or regulatory bodies governing takeovers within your jurisdiction?
Takeover of companies participating in the financial instruments market is governed by the Law on the Financial Instruments Market and is supervised by the Financial and Capital Market Commission.
What are the methods for achieving takeovers?
There are three methods to achieve takeover (that is, acquiring control of a company by stock purchase) by making an offer of purchasing stocks to the shareholders:
Voluntary offer to purchase stocks - a person is entitled to make this offer if he wishes to acquire at least 10% of the total stocks with voting rights.
Mandatory offer to purchase stocks - this offer must be made if a person directly or indirectly acquires stocks amounting to or exceeding half of the votes within the company; or a person has voted for exclusion of the stocks from the regulated market.
Final offer to purchase stocks - this offer must be made if a person acquires votes granted by stocks amounting to or exceeding 95% of the total stocks with voting rights. Other shareholders are obliged to sell their stocks when the final offer to purchase these stocks is made.
How differently are hostile and voluntary takeover bids treated in the legislation/regulations?
Legislation does not regulate hostile takeover, which is understood as an offer of a bidder who decides to go ahead with the offer to acquire a company's shares despite the rejection of the terms by the company's board. Following the provisions of the Latvian law, the board and council members are not entitled to take action with regard to hostile takeover, unless they are also the shareholders of the company subject to hostile takeover.
What penalties are imposed on parties that violate takeover regulations (or equivalent)?
The Financial and Capital Market Commission is entitled to revoke the offer to purchase stocks if it identifies non-compliance with the laws or if it identifies circumstances that could result in a failure to fulfil this offer. Moreover, if the shareholder does not make a mandatory offer to purchase stocks, it can loose the voting rights in the company.
If a takeover falls within the scope of the Competition Law (for example, a merger of market participants), the Competition Council must be notified about it and must give respective consent. Thus, if a new market participant or the acquirer of the decisive influence has not submitted notification to the Competition Council, the Council may impose a fine of up to Lats1,000 for each day, calculated from the day when the notice should have been submitted. Moreover, if a merger of market participants has occurred that is contrary to the decision of the Competition Council, the Council may impose a fine on the new market participant or on the acquirer of the decisive influence of up to Lats1,000 for each day, calculated from the day when the notice should have been submitted.
What are the thresholds for disclosing bids and offers?
The threshold is 10% of the total stock with voting rights in the case of a voluntary offer to repurchase stocks and in all cases when a mandatory and final offer to repurchase stocks has been made.
In certain cases the bid or offer should also be disclosed to the Competition Council, as described under Competition/Antitrust.
Competition/Antitrust
What were the recent developments in competition policy and legislation in relation to M&A within your jurisdiction?
The basic competition policy trends are reflected in the Competition Law. The trends are to detect and prevent cases of restrictive agreements, abuse of the dominant position, and concentration control of market participants. The Competition Law is based on Sections 81 and 82 of the European Community Foundation Agreement and on Regulation 4064/89 of the Commission dated December 21 1989 on concentration control of enterprises.
How are the competition/antitrust regulations enforced within your jurisdiction?
The effective enforcement of the competition/antitrust regulations is the duty of the Competition Council. The Competition Law provides that the Competition Council:
monitors that market participants observe prohibited abuse of the dominant position, unfair competition and prohibited agreements as prescribed in laws and international agreements;
examines submitted notifications regarding market participant agreements and decisions taken in respect of them; and
restricts market concentration by taking decisions in relation to mergers of market participants.
Simultaneously with the Competition Council, the court may also determine violation of the Competition Law.
How does legislation approach the issue of abuse of the dominant position?
The Competition Law provides that abuse of the dominant position is prohibited, and defines abuse as:
refusal to enter into transactions with other market participants or amending the provisions of a transaction without an objectively justifiable reason;
restriction of the amount of production or sale of goods and restriction of market or technical development to the detriment of consumers without an objectively justifiable reason;
imposition of provisions, according to which entering into, amending or terminating transactions with other market participants makes the market participants dependent on them, or makes these market participants accept such additional obligations that by their nature and commercial usage have no connection with a particular transaction;
direct or indirect imposition of unfair purchase or sale prices or other unfair trading provisions; or
application of unequal provisions in contracts with other market participants, creating disadvantageous conditions for them in terms of competition.
If the competent authority determines abuse of a dominant position, it will make a decision on the violation, legal obligations and imposition of the fine.
The competent authority may impose on market participants fines of up to 5% of their net turnover for the previous financial year, but not less than Lats250 each. If the legally imposed obligations have not been followed, a decision to increase the fines up to 10% of the net turnover for the previous financial year may be taken but the fine must be at least Lats500 for each participant.
To what extent are the parties to an M&A transaction subject to prior notification requirements?
The parties subject to a M&A transaction must notify the Competition Council before the merger if:
the combined turnover of the participants in the merger during the previous financial year was more than Lats25 million; and
at least one of the merger participants is in a dominant position in the relevant market before the merger.
Merger of market participants in this case shall be understood as:
merging of two or more independent market participants in order to become one market participant (consolidation);
joining of one market participant to another market participant (acquisition); or
a situation where one or more market participants acquire a decisive influence over another market participant or other market participants.
A merger of market participants without a prior notification is illegal.
Additionally, companies participating in the financial instruments market must notify the Financial and Capital Market Commission and the stock exchange.
Author biographies
Valters Kronbergs
Kronbergs Law Office, EY Law Advocate, Partner.
Valters Kronbergs is a licensed lawyer in Latvia and the Province of Ontario, practising law in Riga since 1993, and specializing in corporate, M&A and real estate law. Valters established the law firm Kronbergs Law Office in 2000. Kronbergs Law Office is a founding member of EY Law. Valters is the author of "Property Legislation and Real Estate", "Agency, Distribution and Franchising" and "Employment Law" in Global Markets Briefing: Latvia (Kogan Press, 2003), "Latvian Investment Legislation" in Central European, An Investment Guide to Estonia, Latvia and Lithuania (April, 1998); and co-author of International Employment Law: Latvia (Mathew Bender & Co, 2002). Valters is the former president of the Riga International Rotary Club, a former director of the Rule of Law Committee of the Foreign Investor's Council of Latvia, has served seven consecutive terms as vice-president of the American Chamber of Commerce of Latvia, and has served on the board of the Centre for Human Rights and Ethnic Studies in Riga. Valters has been a representative of the Latvian Employer's Confederation in negotiations with organized labour and the government regarding the content of the draft Labour Law.
Valters is a member of the Canadian Bar Association and the Latvian Bar Association.
Imants Jansons
Kronbergs Law Office, EY Law Lawyer, Consultant.
Imants Jansons received his diploma in law at the Faculty of Law (BA, 1998 to 2003) from the University of Latvia and is pursuing an LLM degree at the Faculty of Law, the University of Latvia. Imants joined Kronbergs Law Office in 2002 and specializes in commercial and company, M&A, competition, employment and EU law. Imants has considerable experience in managing big projects for domestic and international companies.
Kronbergs Law Office
11 Novembra Krastmala 23
Riga 1050
Latvia
Tel: +371 704 3801
Fax: +371 704 3804
E-mail: Advocate@lv.eylaw.com
Web: www.kronbergs.lv