On June 14, the Competition Council (CC) made a decision to allow JSC “AB City” to acquire a sole decisive influence over JSC “Olainfarm”. At the same time, in order to prevent possible risks to competition and negative consequences of the merger in the retail market of pharmaceutical products, the merger is permitted by binding regulations providing for the disposal of shares in SIA “LATVIJAS APTIEKA” to a third party unrelated to AS “AB CITY” and related parties.
JSC “AB CITY” is the parent company of JSC “Repharm”, and the activities of its group of companies is engaged in the manufacture and sale of pharmaceutical products and medicines, the manufacture and sale of cosmetics, the manufacture and sale of dietary supplements, the operation of pharmacies, the provision of healthcare services, the provision of laboratory testing services, the sale of medical goods and supplies, etc. In turn, the activities of JSC “Olainfarm” are related to the manufacture and sale of pharmaceutical products and medicines, the manufacture and sale of cosmetics, the manufacture and sale of dietary supplements, the operation of pharmacies, the provision of healthcare services, and the sale of medical goods and supplies, etc. Several related companies of JSC “Olainfarm” operate in the territory of Latvia, the most significant of which are SIA “Latvijas Aptieka”, SIA “Klīnika DiaMed”, SIA “SILVANOLS”, SIA “OlainMed” etc.
Markets affected by the merger
CC examined the effects of the merger in the following markets:
- the wholesale market for pharmaceutical products;
- the market for laboratory testing services;
- the market for healthcare (treatment) services;
- the market of production and wholesale and retail of dietary supplements;
- the market of production and wholesale and retail of cosmetics.
The CC found that SIA “AB CITY” market shares in Latvia are expected to increase from 1 to 5%, which is not significant enough to allow the market participant to strengthen its dominant position. Thus, the CC concluded that the merger would not lead to a significant reduction in competition without creating or strengthening a dominant position of the merged entity in any of the affected markets.
As regards the market for the production of pharmaceuticals (medicines) in Latvia, the CC found that a high degree of market concentration had developed between the merging parties, Latvian pharmaceutical manufacturers, and JSC “Grindeks” and its subsidiary JSC “KALCEKS”. At the same time, taking into account the fact that the largest Latvian drug manufacturer by turnover is JSC “Grindeks” and its subsidiary JSC “KALCEKS”, as well as the availability of pharmaceutical products (medicines) distributed by foreign drug manufacturers in Latvia, whose turnover in the Latvian market accounts for 95% of all available pharmaceutical products (medicines) in Latvia, the CC concluded that the merger would not create significant risks to competition in this market. In addition, the CC also concluded that the merging parties’ pharmaceutical (medicine) manufacturing companies are not direct competitors, as they do not produce pharmaceutical (medicine) products belonging to the same tier three of the anatomical therapeutic chemical (ATC) group of the drug system, and that the regulatory framework limits the merging party’s ability to foreclose competitors. As a result, the structure of competition will not be significantly affected or competition will be restricted in the vertically affected markets for the manufacture, wholesale and retail of pharmaceutical products (medicines).
Disposal of shares in SIA “LATVIJAS APTIEKA”
Furthermore, during the phase of the merger report’s compliance with the requirements of the Cabinet of Ministers Regulation No. 800 of 29.09.2008 “Procedures for the Submission and Examination of a Full-form and Short-form Notification Regarding a Merger of Market Participants”, the CC identified potential problems in the retail pharmaceuticals (pharmacies) market. The CC concluded that potential competition on the supply side in this market in certain administrative territories, such as the largest cities, Riga, Daugavpils, Ogre, Tukums, Liepaja, Daugavpils, etc., is significantly limited or non-existent. Already today, a situation has developed in Latvia that several pharmacies of one company tend to be concentrated in specific points of settlements, and in some settlements a significant number or even 100% of pharmacies belong to one market participant. This also applies to the network of pharmacies controlled by JSC “AB CITY” group companies – JSC “Sentor Farm aptiekas”, which is more widely known in the public as Mēness aptiekas.
During the consultations, the CC and the merging parties discussed this situation, as a result of which the CC on 14.02.2022 received information that JSC “Olainfarm” undertakes to dispose of all its shares in SIA “Latvijas aptieka” to a person or persons in which JSC “AB CITY” itself or its related persons and related companies do not exercise decisive influence.
Having assessed the information provided by the merging parties, the CC found that the commitments of the merging parties clearly exclude doubts as to the negative impact of the merger on competition in the retail markets for specialised pharmaceutical stores (pharmacies), if the merging parties dispose of all shares in SIA “LATVIJAS APTIEKA” together with all assets of SIA “LATVIJAS APTIEKA”.
The binding regulations stipulate that until all the shares of SIA “LATVIJAS APTIEKA” together with all the assets of SIA “LATVIJAS APTIEKA” have been disposed of, market participants must ensure that JSC “AB CITY” and persons related to the company do not affect the economic activities of SIA “LATVIJAS APTIEKA”, as well as there is no exchange of information on prices, business plans and other commercially sensitive information between JSC “AB CITY” or its related parties and SIA “LATVIJAS APTIEKA”, unless it is necessary to comply with the requirements of regulatory enactments.
The transfer of SIA “LATVIJAS APTIEKA” to JSC “AB CITY” and a third party unrelated to it, as defined in the binding regulations, will effectively prevent the merger from affecting the retail (pharmacy) market for pharmaceutical products.