If you plan to acquire a stock company in Latvia, the process is governed by Financial Instrument Market Law. Please note that this article covers only acquisitions and take-overs of companies of which stocks are included in a regulated market.
The duty of notification
A person who either directly or indirectly acquires a holding in a stock company in an amount which ensures at least 5, 10, 20, 25, 30, 50, 75, 90 or 95 percent of the voting stocks, shall, not later than within five working days after the acquisition of the stocks, notify thereof the market maker of which these stocks of the stock company are included, as well as the stock company itself.
It must be noted that if a person within the prescribed time period, fails to notify the market maker of which the stocks are included or the stock company itself, it may not exercise any voting rights arising from the stocks belonging thereto or any indirectly acquired voting rights. Decisions of a meeting of stockholders taken through an illegal exercise of voting rights shall be void. No entry in any type of public register may be requested on the basis of these decisions.
Exception to the rule
However the duty of notification does not apply to credit institutions or investment brokerage companies which acquire stocks in their own name, provided that the credit institution or brokerage company does not plan to exercise the voting rights arising from the stocks owned thereby in order to affect the operation of the administrative bodies of a capital company and the economic and financial activities of the stock company. This exception applies only to such credit institutions and investment brokerage companies which are members of the market maker in the regulated market organised. For activist shareholders (or raiders) attempting a hostile takeover, this exception to the rules of notification is not practical in effect. On the other side for so-called white knights this exception can be seen particularly useful and should be taken into account, alongside cross-purchase agreements or agreements similar to those, while attempting a hostile takeover in Latvia. Similar agreements can be i.e shark repellents such as poison pills or safe harbours.
Please do not hesitate to contact us if you have any questions about company acquisitions or takeovers in Latvia.