Hergüner Competition Monthly - November 2023

Consecutive Reverse Triangular Merger Decisions by the Board

The Board published its decisions¹ approving Google LLC (“Google”)’s acquisition of sole control over Photomath Inc. (“Photomath”) and its decision² approving Globus Medical Inc. (“Globus”)’s acquisition of sole control over NuVasive Inc. (“NuVasive”) on 07.11.2023 on its website.

The transactions subject to the decisions are “apparent mergers”, defined as “reverse triangular mergers” in the competition law doctrine, and are considered as “acquisitions” by the Board.

Google Decision

As per the proposed transaction, Photomath will merge with the wholly-owned subsidiary of Google (“Google Subsidiary”), whose name is not mentioned in the decision. Following the consummation of the proposed transaction, it is envisaged that the independent corporate existence of the Google Subsidiary will cease and Photomath will continue its activities as a wholly-owned subsidiary of Google. In this way, Google will acquire sole control over Photomath despite that the apparent transaction is a merger of the Google Subsidiary and Photomath as described above.

In its decision, the Board frequently referred to the European Commission decisions approving these transaction unconditionally at the EU level as well as its own precedent regarding the reverse triangular mergers.

Photomath operates in the online homework and study help (“HSH”) market in Türkiye and provides services to its users through desktop/mobile browsers and applications. Photomath also has an application that scans math problems with a phone camera and solves those problems.

As it is known, Google operates in the general search services market with Google Search and in the online HSH tools market with Google Search and Socratic, which is a tool developed to solve math problems. Google Search also uses Google Lens to scan problems within the scope of HSH services.

As per its examination, the Board concluded that:

• There is a horizontal overlap between the activities of Photomath and Google in the market for online HSH tools involving math, and
• There is a vertical overlap between search services and Android App Store services that Google offers and online HSH tools that Photomath offers on its website and mobile application.

In addition to the horizontal and vertical overlap, the Board also examined the possibility of Google using its market power gained through Google Search in the general search services market as competition-restricting leverage for Photomath’s activities and whether multimarket competition effects would arise.

Conglomerate effects, which have been evaluated in relatively few decisions, are cases where the relationship between undertakings is not defined as horizontal and vertical overlap but rather the transaction has an impact on markets that are complementary or closely related. The Board concluded that there is no complementarity in the relationship between Google and Photomath and that Google’s search service and Photomath’s services were not creating a specific product type purchased by the same customer group.

Nevertheless, the Board approved the transaction unconditionally by referring to the assessments of the European Commission in terms of horizontal and vertical overlap and leveraging that the transaction would not create any concentration or any significant impediment on e ective competition.

Globus Decision

Similar to the Google Decision, after the merger of Globus’s subsidiary Zebra Merger Sub (“Zebra MS”) with NuVasive, Zebra MS will end its corporate existence and NuVasive will continue its activities as a wholly-owned subsidiary of Globus.

It is indicated that NuVasive and Globus have activities in Türkiye on a limited scale, both of which operate globally in the production and sale of medical devices. NuVasive’s activities in Türkiye only consist of the sale of magnetically adjustable implant products for spine and specialized orthopedics through its domestic distributor. On the other hand, Globus’ activities in Türkiye only consist of the sale of scoliosis correction system products.

The Board concluded that there is horizontal overlap between the activities of the parties in the “spinal products market”.

The Board approved the transaction by concluding that no competitive concern will arise, as:

• There are a lot of domestic players in the market,
• The activities of the Parties in Türkiye are on a limited scale, and
• The market share of the Parties will be under 20% after the transaction.

Technology Undertakings in M&A Decisions

In 2022, as one may remember, some significant amendments regarding the Communiqué Concerning Mergers and Acquisitions Calling for the Authorization of the Competition Board (“Communiqué no 2010/4”) were introduced. Among the many amendments, those related to subject of this letter are summarized as follows:

• The turnover thresholds for transactions requiring authorization from the Competition Board have increased, and
• The term “Technology undertakings” has been defined and an exception for these technology undertakings is stipulated for the assessment of turnover thresholds.

As per the said exception, if the transactions involve the acquisition of technology undertakings, the turnover threshold of 250 million TL set forth under Article 7 of the Communiqué on Mergers and Acquisitions no. 2010/4 are not required.

Accordingly, in November, three transactions approved by the Board were notified by falling within the scope of the technology undertaking exception.

In the first of these transactions³, the Board approved the acquisition of sole control over Cvent Holding Corp. (“Cvent”) by Blackstone Inc. through Capstone Borrower, Inc., which was announced on 04.12.2023. As the target of the acquisition, Cvent, provides public meetings, events, and hospitality technologies, it is considered to operate in the "information technology services" market. As such, it is concluded that the transaction is subject to authorization from the Board regardless of whether the turnover of Cvent, which is accepted as a technology undertaking, exceeds the threshold specified in the Communiqué on Mergers and Acquisitions.

Secondly, in the Globus Decision, the methodological solutions and facilitative technologies developed by NuVasive for spine surgery place NuVasive in the health technologies sector. As health technologies is one of the fields of activity included in the technology undertaking definition, NuVasive's turnover was not taken into account when assessing whether the transaction requires approval from the Board.

Similarly, in the Google Decision, Photomath, the target of the transaction, is an undertaking that provides online HSH tools in Türkiye. Regardless of whether the turnover of Photomath, which is considered as a technology undertaking due to the digital platform and soware services it provides, exceeds the turnover thresholds in the Communiqué on Mergers and Acquisitions, Google's global turnover exceeding 3 billion TL was su icient to notify the transaction.

The Board Focused on Cement and Ready-Mixed Concrete Producers!

The Board announced in November that it had initiated three separate investigations⁴  against cement and ready-mixed concrete producers operating in four different provinces.

The Board initiated these investigations based on the following allegations:

• 18 undertakings operating in Hatay (8 undertakings) and Malatya (10 undertakings) in the areas of cement and ready-mixed concrete production and sales jointly determined prices and allocated territory/customers,
• 17 undertakings operating in Ankara in the production of ready-mixed concrete entered into agreements and concerted practices restricting competition in the labour market,
• 19 undertakings operating in Aydın in the production and sale of ready-mixed concrete engaged in price fixing, territory/customer allocation, and resale price maintenance.

As you may recall from the March 2023 issue of Hergüner Competition Monthly, following the earthquakes that occurred on 06.02.2023, the Board directed its attention to the cement and ready-mixed concrete sector through the undertakings operating in the earthquake-affected regions such as Hatay and Malatya.

After a year of inquiries in the cement and ready-mixed concrete sectors, which have an important place in Türkiye and are crucial especially due to the accelerated construction activities in earthquake zones, the Board initiated the abovementioned investigations whose outcomes are eagerly awaited.

The Investigation Against AVON Concludes Through Settlement

The Board published its decision⁵ on 03.11.2023 on its website regarding the conclusion of the investigation initiated against Avon Kozmetik Ürünleri Sanayi ve Ticaret AŞ (“Avon”) with the allegations of resale price fixing and restrictions on internet sales. The investigation was concluded through settlement.

The Board determined that:

• AVON monitored its sellers closely and stopped supplying products to the sellers operating on e-commerce platform, and
• AVON applies resale prices for its resellers and its resellers apply to AVON for approval on prices.

When calculating the administrative fine, the Board applied a 40% discount to the base fine considering the small share of products related to the violation in AVON’s turnover as a mitigating factor. Also, the discount to be applied following the settlement was decided as 25%.

Investigations in the Egg Sector Have Been Concluded

On 31.10.2023, the Competition Board (“Board”) announced the completion of the investigations in the egg sector based on alleged price-fixing, territory allocation, and supply quantity restriction⁶.

In May 2022, the Board initiated two separate investigations, one against 34 egg producers and the second against 12 egg producer undertakings and 13 associations of egg producer undertakings.

Based on the announcement, the Board determined that 26 undertakings party to the first investigation had violated Law No. 4054 on the Protection of Competition (“Competition Law”) on the grounds that they:

• determined the egg prices and
• allocated the territories where eggs are sold.

The associations of undertakings party to the second investigation are in violation because they:

• fixed the egg prices, and
• restricted the egg supply.

The investigation in the egg sector reminds another decision rendered by the Board in 2019 In the decision⁷ which examined the claim that egg producers in Mardin were in communication to determine the sales prices, the conduct of the undertakings was the central focus. The Board concluded that the mutual consent requirement pursuant to Article 4 of the Competition Law was not met as only one of the undertakings clearly revealed the purpose of price fixing, and therefore, the Board did not initiate an investigation.

Emphasizing the economic analyses when evaluating the cartel in its former decision, the Board, in terms of the standard of proof, required evidence of concurrence of will between the undertakings rather than relying on the statements of an undertaking.

From this perspective how the issue of proof and, in particular, how the associations of the undertakings will be evaluated in the reasoning of the decision subject to the announcement is a matter of question.

The Pharmaceutical Sector is on the Board’s Radar

On 30.11.2023, the Board announced that an investigation⁸ was initiated against 19 undertakings in which the majority operate in the pharmaceutical sector, but the announcement lacks information on the allegations. It is worthy to note that the investigation includes almost all of the undertakings operating in the pharmaceutical sector. Furthermore, the sector inquiry initiated by the Board in 2022 regarding the pharmaceuticals sector is currently ongoing.

Is the Application of the Automatic Pricing Mechanism a Type of Violation?

On 15.11.2023, the Board announced that it initiated an investigation⁹ against D-Market Elektronik Hizmetler (Hepsiburada) ve Ticaret AŞ, DSM Grup Danışmanlık İletişim ve Satış Ticaret AŞ (Trendyol), and Amazon Turkey Perakende Hizmetleri Limited Şirketi (Amazon). This investigation, which focuses on the application of automatic pricing mechanisms by the said electronic marketplaces, resembles the Board's study on the Reflections of Digital Transformation on Competition Law published in April. In the said study, which we detailed in our May issue, the Board discussed possible new competition violation types in digital markets. We are yet to see whether automatic pricing mechanisms will be considered as a new type of competition law violation with this investigation.

1 The Board’s decision dated 28.04.2023 and numbered 23-19/354-121.

2 The Board’s decision dated 28.04.2023 and numbered 23-19/362-124.

3 The Board’s decision dated 5.5.2023 and numbered 23-20/380-131

4 Investigations have been initiated by Decisions numbered 23-49/937-M, 23-49/936-M(1), 23-49/936-M(2), 23-50/982-M and 23-50/955-M.

5 The Board’s decision dated 09.03.2023 and numbered 23-13/223-72.

6 The Board’s announcement dated 31.10.2023.

7 The Board’s decision dated 13.06.2019 and numbered 19-21/306-132.

8 Board’s decision dated 09.11.2023 and numbered 23-53/1004-M.

9 Board’s decision dated 19.10.2023 and numbered 23-49/940-M.