The transaction had to be one of the largest in recent times in Lithuania, since agreed deal value exceeded 200 million Euros. The process seemed to be smooth (the share purchase agreement has been successfully signed, etc.) until the moment, when Lithuanian Competition Council (LCC) earlier this week refused to issue final approval (so called merger clearance) for the acquisition.
In general, it is very uncommon that LCC does not issue merger clearance; there were only few such cases before in Lithuania. What is even more interesting, that it is the first time where LCC issued conditional clearance in the beginning (October 2017) but at the final stage has not approved fulfillment of the required conditions and hence rejected the merger. E.g. „Vienna Insurance Group" successfully passed similar exam earlier this month and obtained approval to acquire „BTA Baltic Insurance Company AAS" in return selling a part of business to „Balcia Insurance SE".
To be more precise, trying to avoid dominance by combined entity in the market, LCC agreed on the merger only with the condition that RIMI and IKI sell 17 particular stores prior to completing the merger. Parties found at least three-four buyers for these stores and these buyers were accepted by the trustee of LCC, however, LCC valued all bidders as uncapable to ensure sustainable and effective competition in the relevant areas, as compared to the pre-merger situation. Having in mind that potential buyers where rather decent (at least some of them, e.g. Latvian MEGO, having 85-90 stores throughout Latvia), by rejecting RIMI/IKI merger LCC established very high (or vague?) standard for any future similar cases, where fulfilment of LCC conditions are needed.
The content of the above LCC decision is highly discussable, but at this stage RIMI and IKI have only two practical options, looking from legal point of view. If parties are still interested in completing the deal, they can either change structure (terms and conditions) of the deal and approach LCC again or to challenge LCC's decision at the Lithuanian court. As court case may take a year or even longer, that may be not the best decision businesswise; however, an expected time of new clearance procedure at LCC must be also evaluated by the parties and compared with the expected court case duration. On the other hand, both RIMI and IKI may investigate various new possibilities to implement transaction. Costs incurred by both parties until now should be significant and publicity of the deal have already created material expectations from the partners and consumers; hence, RIMI and IKI should be very eager finding the solution for the current situation.
Mr. Per Strömberg (CEO of ICA Gruppen, which controls RIMI) has already expressed his disappointment. But if RIMI and IKI are lacking fulfilment nowadays, other market players should be enthusiastic about the outcome. Even the biggest market players had to be reluctant to face strengthened competitor. It is possible that RIMI/IKI rivals tried to influence LCC decision by providing additional information to LCC (what is legally acceptable).
If any party (RIMI or IKI) decides not to proceed with the deal, exiting from the transaction should not be complicated. Standard share purchase agreement establishes merger clearance as a condition precedent (CP) for the so-called closing of the deal. Non-fulfilment of any CPs is typically treated as a valid ground to terminate the contract. However, this scenario looks the least possible.
All in all, the decision from LCC sends a message to foreign investors and raises awareness that making mergers in Lithuania may be quite complicated. The best practise would be waiting for the ultimate end of this merger, to get the complete picture of emerging practise and rules on mergers' control in Lithuania.