The Merger Control Communiqué1 of the Turkish Competition Authority, entered into force on January 1st , 2011, brought some drastic changes to the merger control procedure that are accompanied by some confusion amongst companies. Parallel to the increasing number of decisions and the clarification efforts of the TCA, some of the concepts that have caused hesitation are becoming clearer.
One of the central concepts of the new Communiqué that attracted the special interest of companies and competition law practice is the concept of "affected market." The reason for the elevated interest in the concept of the affected markets is the exclusion provision of the Communiqué that abolishes the requirement for notification of a concentration if there is no affected market, even if the turnover thresholds are exceeded.
An affected market is defined by the Communiqué as2 "Relevant product markets that might be affected by a transaction to be notified and where:
- Two or more of the parties are commercially active in the same product market (horizontal relationship); and
- At least one of the parties is commercially active in the downstream or upstream market of any product market in which another party operates (vertical relationship) constituting the affected markets."
At first glance, we discover that this definition has similarities to that of the European Commission.3 A closer look, on the other hand, reveals that the concept of affected market as defined by the TCA:
- Does not have a geographic dimension;
- Is a probabilistic concept and does not require (neither does it exclude) the existence of factual overlaps; and
- Does not have any market share criteria,
unlike the affected market concept defined by the EU Commission.
These characteristics of the concept define a substantially larger space of markets as objects of interest for merger notifications in Turkey. In other words, compared to the European definition of affected market that is an intersection of commercial activities of the parties defined in terms of relevant product markets and geographic markets, Turkish interpretation of the concept is hypothetic and probabilistic.
Taking into account the lack of geographic dimension, the probabilistic approach and the width of the scope, the term "affected market" is a misnomer. In order to avoid misconceptions, the concept should have been called "factually or possibly affected market" instead. Taking into consideration the confusion caused by the elusive character of the concept, the Turkish Competition Authority clarified its understanding of an affected market in a guiding document published on May 3, 20114. According to this document, the existence of an affected market in the sense of the Communiqué is assumed, even if only one of the parties is producing goods or rendering services in Turkish markets, and the other party is active in the markets for the same products (or services) anywhere else in the world. Likewise, the existence of an affected market is assumed if one of the parties is active in Turkish markets for a certain product (product A) and the other party is active in upstream markets (markets for products that are an input for product A) or downstream markets (markets for which product A is an input) of this product anywhere else in the world. It is well placed to mention that the existence of a factual business connection is not required for the assumption of a vertical or horizontal relationship in this sense.
For example, take the acquisition of a company (alias T) producing and selling computer hardware, established in Turkey by another company (alias G) producing and selling computer hardware globally. Assume that G is producing and selling computers worldwide except in Turkey. At the same time, G is a seller of computer components in South Korea. On the other hand, T is assembling computer components into finished computers in Turkey. In this illustrative example, there are horizontal (both G and T are active in the production of computers) and vertical overlaps (G is selling computer components and T is buying computer components, albeit from another supplier) between the activities of the parties, even if the parties do not have any business relationship.
Considering that most of the acquisitions realized by strategic investors who are the real economic actors in the area of acquirers' expertise, the existence of an affected market is the rule rather than the exception for these transactions. The relief of notification based on the non-existence of an affected market is mainly constructed for the acquisitions of companies established in Turkey by financial investors, such as private equity companies that are holding portfolios of companies active in markets other than those in which their target company is operating. In other words, acquisition of a domestic undertaking by a financial sector company that already has a company in its portfolio, and which is operating in the same market as the Turkish target company, will be subject to notification so long as the turnover thresholds are met.
The hypothetic and probabilistic nature of the affected market concept causes a peculiar information submission burden upon notifying parties. Consider the case of a globally active company that attains a market share in Turkey through its subsidiary purchasing one of its local competitors (or suppliers). In this case, there is at least one factually affected market to consider. The hypothetic and probabilistic dimension is no more relevant. According to experience, in cases like this (much of the time) the Turkish Competition Authority considers the information related to the Turkish markets as sufficient. On the other hand, if the acquiring party in this transaction were not to have any activities in Turkey, the (possibly) affected markets will be defined as Turkish with global markets for the relevant products, which in turn will mean that the parties are expected to submit turnover and market share information concerning their activities in the global and Turkish markets. The peculiarity is that the parties are expected to submit more sensitive information in cases that are less prone to cause competitive concerns.
The new Merger Communiqué brought some clarification to parties concerning their notification obligation by abolishing market share thresholds for the notification requirement, but a portion of this clarity has been rescinded through with the exception provision of the new Communiqué. The broad scope of the affected market concept renders the exception useless for both the parties as well as the Turkish Competition Authority. It does not provide a real exception despite the anticipation it creates and misguides the undertakings upon self-assessment. At the same time, it fails to sieve the transactions that do not create any competition law risk and, hence, the exception rule does not serve the aim of better-allocating Competition Authority resources. There is a need for further elaboration regarding the complications stemming from the elusive definition of the affected market concept.
Footnotes
1 Communiqué Concerning Mergers and Acquisitions Calling for the Authorization of the Competition Board (Communiqué No: 2010/4).
2 Section 5 of the Communiqué.
3 Commission Regulation (EC) No. 802/2004, Annex 1, Section 6.
4 Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints In Mergers and Acquisitions
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