Turkish Law Blog

Control Regime of Mergers or Acquisitions within the Context of Turkish Competition Law

Bekir Bozdağ Bekir Bozdağ/ Güzel Law Office
Oğuzkan Güzel Oğuzkan Güzel/ Güzel Law Office
17 September, 2019
508

1. Introduction

Turkish Competition Law audits ex-post (after the incident) the abuse of dominant position and/or damaging the competitive market via agreement, concerted practice or decisions of undertakings that are active in the certain markets; it also audits ex-ante (before the incident) the competition by subjecting the possible concentration in the sector caused by merger or acquisitions to permission.

It is possible for an undertaking to dominate the certain market or to reduce the number of players in the certain market, resulting in co-operative effects that can lead to an agreement, concerted action on agreement process/sustainability between competitors. These may be the outcomes of transactions that cause a permanent change in the control structure of undertakings that are subject to merger or acquisitions in competition law. In such condition, the Competition Board does not approve the realization of that merger/acquisition in order to prevent the restriction of competition in the related market.

The prevention of market structure and market power that may lead to or facilitate the conduct of prohibited acts in Articles four and six of the Act on the Protection of Competition[1] (“Act No. 4054”) is much more effective in achieving the main goals of the competition policy in general. The Law mentioned, is also ex-post audited by the Competition Board. In the scope of Competition Law, controlling the mergers or acquisitions and preventing the concentrations that may have anti-competitive results has great importance for the formation of a competitive market structure if the conditions are met.

2. Definition of Merger and Acquisition According to Turkish Competition Law

Article seven of the Act No. 4054, entitled Merger or Acquisition contains the kinds of transactions that are accepted as merger or acquisition in the scope of Competition Law in general. The article also gives the Competition Board the authority to determine under which conditions merger or acquisitions would be deemed valid without approval. The Competition Board firstly issued a Communiqué based on this authority which was published in the Official Gazette on 12 August 1997 with Communiqué No. 1997/1. Then, in 2010, the Communiqué No. 1997/1 is updated by the Competition Board and the Communiqué No. 2010/4[2] dated 7 October 2010 is issued. The concept of merger or acquisition in the scope of Turkish Competition Law has been clarified to a certain extent with these Communiqués. Moreover, various guidelines have been published by the Competition Board to clarify the issue.

Pursuant to Article five of the Communiqué, a merger or acquisition under Article seven of Act No. 4054 is:

  • Merger of two or more undertakings with a permanent change in control,
  • The acquisition of shares or assets by direct or indirect control of all or part of one or more undertakings by contract, by one or more undertakings, or by one or more persons that currently control at least one undertaking.

As understood, the ability of a transaction to be approved as a merger or acquisition in the context of Competition Law depends on whether there is a permanent change in the control of the undertaking. In the Guidelines on Cases Considered as a Merger or an Acquisition and the Concept of Control (the current version of the Guideline was adopted on 5 April 2018 with the decision 18-10/195-RM(2))[3] issued by the Competition Board, the situations that make permanent changes are listed. These situations are going to be briefly discussed below.

2.1. Merger of Two or More Undertakings:

Establishing a new legal personality by terminating the legal personality of more than one independent undertakings, or the termination of the legal personality of an undertaking and joining an undertaking whose legal personality continues is accepted as a merger due to the emergence of a single legal entity. On the other hand, independent undertakings forming a single economic integrity by bringing their activities together without legally terminating their legal personality shall be accepted as a merger in the scope of Article seven.

2.2. Takeover of Control

It is stated in the Communiqué that in the pursuance of Article seven of Act No. 4054, a legal personality or in fact control must be taken over permanently for a takeover to emerge. It can be accepted that control can be taken over by some means giving the right to exercise a certain impact on the undertaking. Some of the means are:

  • Control by the takeover of shares or assets
  • Control via contract
  • Agreements provide a change of control in terms of their effects

2.3. Changes in the Composition of the Control

A change in the composition of the control is accepted to occur if the undertaking changes from a single control to joint control or from joint control to a single control. Where there are more than one shareholders in the joint control, an increase or decrease in the number of shareholders is also considered as a change in the composition of the undertaking’s control. However, transfer of the shares which does not affect the control of the undertaking or which does not change the control between shareholders, are not considered as a takeover in the context of Competition Law.

2.4. Joint Ventures

Article five of the Communiqué foresees the establishment of a joint venture (fully functional joint ventures) which permanently performs all functions of an independent economic asset as a takeover. This takeover is possible if a new independent economic structure is created with the contribution of more than one undertaking. The operational independence of the new formation is sufficient to consider the acquisition as a takeover in terms of Competition Law.

3. Notification Thresholds of Mergers or Acquisitions

In Turkey, whether the merger or acquisition transactions are subject to the supervision of the Competition Board is determined regarding to the turnover threshold system. With this system, obligatory notification obligation applies to the undertakings in case the transaction going to be performed exceeds the thresholds. It is also stated in the Communiqué that the transactions exceeding the specified thresholds that are performed without the permission of the Competition Board will not have any legal validity.

Pursuant to Article seven of the Communiqué, notification to Competition Board is mandatory if any or both of the following thresholds are exceeded:

  • The total turnover of the transaction parties exceeding 100 million TRY in Turkey and at least two of the transaction parties’ turnovers exceed individually 30 million TRY in Turkey,

OR

  • Value of the subject exceeds 30 million TRY in Turkey when there is an acquisition, at least one of the transaction parties’ turnover exceeds 30 million TRY in Turkey and at least one of the other transaction parties’ worldwide turnover exceeds 500 million TRY,

 

Threshold in the Communique

A) Total turnover of the transaction parties > 100.000.000 TRY

    At least two of the transaction parties’ turnovers in Turkey > 30.000.000 TRY

or

B) At least one of the other transaction parties’ worldwide turnovers > 500.000.000 TRY

    Value of the subject when there is an acquisition or at least one of the transaction parties’ turnover in Turkey when there is a merger > 30.000.000 TRY

 

It would be beneficial to explain the concepts of “related undertaking” and “transaction party” in order to understand the thresholds. “Related undertaking” means the person or economic units that are the direct parties to the merger or acquisition, and the “transaction party” means the economic unity of each undertaking is a part of the transaction.

The most important point to be taken into consideration while determining the related undertakings on each merger or acquisition is the concept of “economic unity” rather than the “legal personality”. For instance, if only C is taken over by a company Y from the independent economic facilities A, B, and C owned by an X company, the transaction party is only C and Y, and if the thresholds have been exceeded is determined by the turnover of C and Y.

Although these limits are legally determined, the depreciation of the Turkish lira in our country changes the borders in practice. Therefore, the number of files related to mergers or acquisitions that come before the Board increases significantly and limits the time that the board will allocate for each file. In order to avoid such a problem, our advice is to set the limits annually and thus to engage the Competition Board with fewer files. This will allow the Board to spend more time and effort on more important mergers or acquisitions.

4. Notice of Merger or Acquisition

Notification of mergers or acquisitions that are subject to authorization is regulated in Article 10 of the Communiques. Accordingly, notification can be made by the parties together, by one of the parties or their authorized representatives. The party notified must inform the other relevant parties as well.

The notification is made with the printed notification form annexed to the Communique and all the necessary information and documents should be submitted completely and correctly. Any change or progress until the decision of the Competition Board must be notified immediately to the Competition Board. The administrative fine is applied to those submitted incorrect or misleading statements by the Competition Board.

If mergers or acquisitions are required to be notified, the Competition Board must be notified prior to the transaction, except in certain circumstances.

In accordance with the Article 10/6 of the Communique, if the Competition Board is not notified regarding mergers or acquisitions that are required to be notified or notified after the transaction is completed, pursuant to Article 11 of the Act No. 4054,

a) If the transaction is not within the scope Article 7/1 of the Act No. 4054, while permitting the transaction, the Competition Board also imposes an administrative fine,

b) If the transaction is within the scope of Article 7/1 Act No. 4054, as well as imposing an administrative fine, the Competition Board also decides,

  • The termination of the merger or acquisition,
  • The elimination of all in fact situations that have been carried out unlawfully,
  • The return of all shares or assets seized in a way determined by the Competition Board to the former owners if possible, and transfer to third parties if not possible,
  • The acquirers cannot participate in the management of the undertakings in any way until the assignment to the former owner or third parties,
  • Finally, any other measures the Competition Board finds necessary

5. Procedures Carried Out by the Competition Board

Following the notification of merger or acquisition, the procedures carried out by the Competition Board are covered in Article 12 and the continuing clauses of the Communique.  The notifications are announced on the website of the Competition Board by referring to the related undertakings and their fields of activity. Thereafter, the notification regarding the merger or acquisition is discussed by the Competition Board following the preliminary examination process completed in 15 days. Mergers or acquisitions that are not processed in 30 days of the application are accepted as permitted and shall legally be valid.

Following the preliminary examination, the Competition Board may either directly allow the transaction at the first assessment or decide to include the transaction in the final examination. While the final review decision is made by the Competition Board, it is also possible deciding to take the necessary measures regarding the transaction.

  • While examining the notifications regarding mergers or acquisitions by the Competition Board, following titles stated in the Communiques would be taken into consideration:
  • Structure of the relevant market
  • The actual and potential competition of undertakings established inside or outside of the country
  • Market position, economic and financial power of undertakings,
  • Alternatives for finding suppliers and customers,
  • Access to supply sources
  • Barriers to access to the markets,
  • Supply and demand trends
  • The interests of consumers
  • Efficiency for the benefit of the consumers

Although the above-mentioned titles are not limited, it is appropriate to state that the Competition Board evaluates according to the titles above.

In the case where the Competition Board does not allow the transaction directly and decides to conduct a final investigation, the decision is notified to the relevant parties.

With the notification made, the first objections of the Competition Board, where the merger or acquisition process is suspended and cannot be implemented until the final decision and the other measures stipulated if there is any, is notified to the related parties.

The Competition Board does not allow such merger or acquisition transactions that are stated below:

  • Mergers or acquisitions result in a significant reduction of competition in the whole or in part of the country, either alone or in combination, to create or strengthen the dominant position,
  • The creation of a joint venture between undertakings with the purpose or effect of limiting competition and which will permanently perform all functions of an independent economic entity, (exemption in pursuance of Article five of the Act No. 4054)

The possibility that a merger or acquisition may have a detorting, restrictive or preventive effect on competition may be determined by the Competition Board, as well as the conditions of the varieties may be determined, and the parties to the merger or acquisition may make various commitments to eliminate these effects. The undertaking may give commitment during the preliminary or final review phase and the Competition Board may also issue a permit decision by stipulating conditions and obligations to ensure the fulfillment of the commitments. If the commitments given by the undertakings do not eliminate the anti-competitive, restrictive or preventive effects, the related merger or acquisition is not permitted by the Competition Board.

The Competition Board may only reconsider the merger or acquisition transactions previously permitted, in two cases, when:

  • Incorrect or misleading information shared by the parties in the notification,
  • The conditions, commitments or obligations referred are not fulfilled by the transaction parties

6. Competition Board Permission Rates and Reasons for Rejection

It could be said that the Competition Board has granted permission to mergers or acquisitions as much as possible. According to the statistics published on the Competition Authority's website, in the last five years between 2014-2018, only 2 (two) of the 990 applications submitted were rejected and 12 were granted conditionally.

In the acquisition transaction that was not allowed in 2017, all shares of the seven undertakings belonging to the Ulusoy Group in which the Ro-Ro and maritime transport undertakings are included by the company. Competition Board in the final examination stated that, UN Ro-Ro Businesses that are in a dominant position in the transport market between Turkey and Europe Inc.'s dominant position will be strengthened and did not allow the transaction by assuming that when Ulusoy Çeşme Liman Isletmeleri A.Ş. is taken over, the joint UN Ro-Ro İşletmeleri A.Ş. would become dominant in this market and the competition would decrease significantly.[4]

In 2015, the Competition Board rejected the transaction which Setur Servis Turistik A.Ş. take over all shares of three undertakings which are Beta Marina Liman, Çekek İşletmesi A.Ş. and Pendik Turizm Marina Yat ve Çekek İşletmesi A.Ş. The Competition Board concluded that the services provided by the marinas differ in the assessment of the investment and the related takeover transaction may affect more than one related product market. At this point, assessments were made to determine whether there is any disruptive effect on the marine services, land services and rental services provided in the marinas. The geographical market where competition is formed has been evaluated separately for different services as in the relevant product market. As a result of all these assessments made by the Competition Board, it was decided to reject the application considering that transaction may affect the related markets negatively.[5]

As it can be seen, above unpermitted merger or acquisition transactions, when a file comes before the Competition Board, the Board first determines the relevant product and geographic markets that the transaction may affect and analyzes the possible negative effects of the requested transaction on the competition in these markets.

7. Judicial Audit of Competition Board Decisions

The final decisions taken by the Competition Board are subject to judicial review in accordance with Article 55 of Act No. 4054, entitled `Judicial Remedy against Board Decisions`. The decisions of the Competition Board to allow or to refuse merger or acquisition transactions are final decisions and subject to judicial review as well.

In 2012, before the amendment of Article 55 of the Act No. 4054, it was envisaged to apply directly to the Council of State as a court of the first instance against the decisions of the Competition Board, but currently, the final decisions of the Competition Board could be brought before the competent Administrative Court (Ankara). It is also possible to appeal against the decisions of the Administrative Court in accordance with the Law on Administrative Procedure.

8. Conclusion

In the context of Competition Law, merger or acquisition transactions are evaluated comprehensively and it is stipulated that all transactions that may cause concentration in the relevant market are audited ex-ante.

Whether taking permission from the Competition Board is required for a merger or acquisition, should be considered in detail within the context of the thresholds mentioned above. Administrative penalties may be applied, in case the transactions are not notified the Competition Board and also, monetary and time losses may occur. As a matter of fact, in the last five-year period, 144 applications were made to the Competition Board for transactions `Excluded/Not Subject to Permission`.

In applications to be submitted to the Competition Board for merger or acquisition transactions, the markets that may be affected by the transaction should be identified accurately and should be analyzed to foresee whether there is any distorting, restrictive or prohibitive effect of the transaction. If it is predicted that such an effect is possible to occur in the analyzes, the most beneficial commitments for the undertakings that will eliminate these effects should be determined and submitted to the Competition Board with the application. Otherwise, it is possible that the Competition Board will not allow the related transaction to be carried out or it can impose more severe sanctions.

Finally, it would be beneficial to state that there is great importance to determine whether the mergers or acquisitions are subject to the approval of the Competition Board prior to carrying out various commercial activities in order not to face any problems in the future processes.


[1] The Act on the Protection of Competition (https://www.rekabet.gov.tr/en/Sayfa/Legislation/act-no-4054)

[2] Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board, No:2010/4 (https://www.rekabet.gov.tr/Dosya/communiques/43-pdf)

[3] Guidelines on Cases Considered as a Merger or an Acquisition and the Concept of Control (https://www.rekabet.gov.tr/Dosya/guidelines/10-pdf)

[4] Competition Board, Ulusoy – UN Ro-Ro Decision, numbered 17-36/595-259, dated 09.11.2017 (https://www.rekabet.gov.tr/Karar?kararId=995c3804-f181-4170-b9bb-8eb2f621d111)

[5] Competition Board, Setur Acquisition Decision, numbered 15-29/421-118, dated 09.07.2015 (https://www.rekabet.gov.tr/Karar?kararId=2e177810-9d86-4fb4-bf7d-bf460dbcc22a)

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