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Deal 5: Girts Apsitis, Member of the Management Board at AS Ventspils Nafta, on Mandatory Share Repurchase

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On January 14, 2021, CEE Legal Matters reported that the Riga office of Eversheds Sutherland had represented Euromin Holdings Limited before the Court of Justice of the European Union in a proceeding with the Financial and Capital Market Commission. CEEIHM spoke with Girts Apsitis, Member of the Management Board at AS Ventspils Nafta, to learn more about the matter.

CEEIHM: Let's start with an introduction as to what AS Ventspils Nafta does and the transaction that gave rise to the proceedings.

Girts: AS Latvijas Kugnieciba (the former name of AS Ventspils Nafta) is part of Vitol, an energy and commodities company. Historically AS Ventspils Nafta was privatized and listed on the stock exchange before Euromin Holdings Limited – which is also a part of Vitol – bought it out.

CEEIHM: Euromin Holdings Limited asked the court to declare a decision of the FCMC unlawful and to retrieve the overpaid amount as damages on the grounds that the FCMC had incorrectly calculated the price of the AS Ventspils Nafta share. What was the basis of this claim?

Girts: In September 2015, Euromin Holdings (Cyprus) Limited acquired more than 90% of the shares of the publicly listed AS Ventspils Nafta, thus triggering the statutory obligation to commence the mandatory bid procedure. The value of one share within a mandatory bid is calculated in accordance with a formula prescribed by the law; however, the final value of one share is approved by the regulator, the Financial and Capital Market Commission of Latvia.

A dispute arose between Euromin and the FCMC as to how the value of one share is calculated. Taking into account that AS Ventspils Nafta is a holding company, a non-controlling interest of more than EUR 150 million was indicated in the company’s consolidated financial statement. Euromin calculated the price of one share deducting the amount of non-controlling interest as assets that actually do not relate (belong) to AS Ventspils Nafta. FCMC insisted that non-controlling interest can’t be deducted because it is not explicitly stated in the law and it obliged Euromin to buy one share of AS Ventspils Nafta for EUR 4.56 instead of EUR 3.12. The FCMC denied all alternative solutions offered by Euromin, leaving Euromim no other choice but to obey its decision.

Eversheds Sutherland Bitans, on behalf of Euromin Holdings (Cyprus) Limited, filed an application to the court requesting that the court declare the FCMC’s decision unlawful and compensate Euromin for its losses in the amount of EUR 7.2 million (the difference between the value of the acquired shares calculated by the FCMC and calculated by Euromin).

CEEIHM: What is the current status of the proceedings and what is the next step?

Girts: The first instance court has rendered a judgment in our favor, however, it limited the recovery to 50% of the claim due to statutory caps of state liability. The Supreme Court has initiated cassation proceedings and requested a preliminary ruling of the Court of Justice of the European Union. Eversheds Sutherland Bitans has represented Euromin Holdings (Cyprus) Limited in a hearing before the CJEU. The judgment in a preliminary ruling case was adopted on December 10, 2020.

The CJEU decided that the Latvian state liability rules are incompatible with the principles of European Union law, that the rules governing the pricing of shares in a mandatory bid must be clear and precise, and that Directive 2004/25/EC prescribes a single definition of an equitable price and the main method of calculating it and derogations from this method are allowed only under clearly defined conditions and criteria. Finally, the CJEU clarified that the Directive does not allow the value of a share to be obtained for the purposes of a takeover bid by dividing the parent company's net assets, including non-controlling interests, by the number of shares issued, unless it is a method of determining the share price which is based on an objective valuation criterion commonly used in financial analysis and which can be considered as "clearly defined."

The next step is for the Senate to rule on the matter, considering the conclusions of the CJEU.

CEEIHM: At what stage was Eversheds Sutherland brought in and what is the firm's mandate?

Girts: After the FCMC obliged Euromin Holdings (Cyprus) Limited to pay a certain purchase price in the mandatory bid of AS Ventspils Nafta in 2015, litigation was initiated to challenge the calculation of the share price. Eversheds Sutherland Bitans has been our representative in this case for the past five years and we are pleased to see that this case is likely to form the first significant example of case law in Latvia on the issues of limitation of the amount in damages and determination of the share price in the mandatory bid process.

CEEIHM: What led you to turn to them specifically for representation in this matter?

Girts: The cooperation of AS Latvijas Kugnieciba (the former name of AS Ventspils Nafta) with Eversheds Sutherland Bitans goes back more than ten years. We have entrusted them both with regular legal support and some of our most complex legal issues. These include commercial, employment, real estate, and construction, administrative and tax issues, and related litigation. Eversheds Sutherland Bitans team’s litigation experience is another important reason for turning to them with this complex issue. We believe that litigation and dispute resolution are some of the firm’s key strengths and we highly value the expertise, professional approach, and perseverance brought to this case by Maris Vainovskis, Ilze Kramina, Krista Berzina, and their team.

Eversheds Sutherland Bitans provides high-level services in all they do. We are highly appreciative of their work and value the relationships we have built over the years.

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