The Turkish Competition Board ("Board''), authorized, in its decision dated 29.05.2013 and numbered 13-32/426-1881, the acquisition of 50,10% of the shares of Sırmagrup İçecek Sanayi ve Ticaret A.Ş. ("Sırma'') by Danone SA ("Danone'') since this transaction does not create a dominant position or strengthen an existing dominant position in the relevant market.
Parties to the Operation
Acquirer. Danone is a multinational company established as per the laws of France and worldwide active in the production of fresh milk, packed water and special products for babies and sick persons or old people having some sensibility.
Danone is active in the Turkish market through the companies Danone Hayat İçecek ve Gıda Sanayi ve Ticaret A.Ş. ("Danone Hayat"), Danone Tikveşli Gıda ve İçecek Sanayi ve Ticaret A.Ş. ("Danone Tikveşli") and Numil Gıda Ürünleri Sanayi ve Ticaret A.Ş. ("Numil"). All shares of Danone Hayat, Danone Tikveşli and Numil pertain to Danone.
Danone Hayat is active in the field of water production, bottling and sale. Danone Hayat realizes the sale of bottled and packed water between 0,3 and 19 liters through various distribution channels. In the meanwhile, Danone Hayat also realizes the sale of mineral water through the trademark Akmina.
In addition to the above, Danone also controls Holding Internationale de Boissons, which is established in France.
Transferor. Sırma is a joint-stock company active as per the laws of the Republic of Turkey. Sırma is active in the production of water between 0,33 and 19 liters through a manufactory established respectively in Bursa and Burdur and two manufactories established in Sapanca and in the distribution of the branded packed water throughout Turkey.
Certain shares of Sırma are held by the Dişli Family, the Karabacak Family and DCEMF Mez Hold BV.
The transaction consists of the acquisition of 50,10% of the shares of Sırma by Danone. Within this scope, Sırma's shares belonging to the members of the Dişli Family will be transferred to Dişli Holding A.Ş. and Sırma's shares belonging to the members of the Karabacak Family will be transferred to Karabacak Holding A.Ş. Both Dişli Holding A.Ş. and Karabacak Holding A.Ş. will be newly established. Following these operations, DCEMF Mez Hold BV will transfer all Sırma's shares in its possession to Dişli Holding A.Ş. Finally, Dişli Holding A.Ş. and Karabacak Holding A.Ş. will transfer some of Sırma's shares in their possession to Holding Internationale de Boissons, which is controlled by Danone.
In addition to the acquisition of the control of Sırma by Danone, an agreement regarding the use of the intellectual property rights of the brand Sırmakeş by Kaynaksu was also signed between Kaynaksu, which is controlled by the Karabacak Family and Sırma. As per this agreement, Kaynaksu will have the right to product and sale packed water with the Sırmakeş brand in Istanbul, Kırklareli, Edirne and Tekirdağ and Sırma will have such right for all other regions.
Legal Framework of the Operation
According to Article 5/1(b) of Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board2 ("Communiqué No. 2010/4"),"The acquisition of direct or indirect control over all or part of one or more undertakings by one or more undertakings or by one or more persons who currently control at least one undertaking, through the purchase of shares or assets, through a contract or through any other means provided there is a permanent change in control'' shall be considered as a merger or acquisition within the scope of the Act on the Protection of Competition ("Competition Act").
Article 5/2 of Communiqué no:2010/4 gives the definition of control. According to this article, the "control may be acquired through rights, contracts or other instruments which, separately or together, allow de facto or de jure exercise of decisive influence over an undertaking. In particular, these instruments consist of ownership right or operating right over all or part of the assets of an undertaking, and those rights or contracts granting decisive influence over the structure or decisions of the bodies of an undertaking."
In the said case, as also mentioned above, there is a transfer of shares since Danone will acquire 50, 1% of the shares of Sırma. Furthermore, upon analysis of the Shareholders' Agreement signed between the parties on 04.05.2013, it can also be noted that, contrary to Dişli Holding A.Ş. and Karabacak Holding A.Ş, Danone will have a decisive influence over the administration of Sırma. In other words, the control of Sırma will be permanently transferred to Danone, by the way of share transfer.
In the light of the foregoing, the operation between Danone and Sırma is considered as a merger or an acquisition within the scope the Communiqué No. 2010/4.
In accordance with Article 7/1 of the Communiqué 2010/4, in case that (a) the total turnovers of the parties in Turkey exceed TRL one hundred million, and turnover of at least two of the parties in Turkey each exceed TRL thirty million or (b) the asset or activity subject to acquisitions, and at least one of the parties in mergers have a turnover in Turkey exceeding TRL thirty million and the other party has a global turnover exceeding TRL five hundred million, the operation shall be submitted to the authorization of the Board.
Considering that in the said case the above-stated thresholds are exceeded, the operation is submitted to the authorization of the Board as per the Communiqué No. 2010/4.
In Turkish competition law, merger or acquisition operations: which (1) create or strengthen a dominant position (2) resulting in significant lessening of the competition in the relevant product market are illegal and prohibited.
For that reason, the Board, in order to determine whether the operation between the parties is prohibited within Turkish law, has respectively realized a thorough analysis as follows:
- The Board has determined the relevant product market and the affected market subject to the said operation;
- The Board has examined whether the said operation will create a dominant position or strengthen a dominant position in the relevant product market (1st test) and in the affirmative, whether the operation will significantly lessen the competition in the relevant product (2nd test);
- The Board has examined the ancillary restraints in the Shareholders' Agreement.
Relevant Product Market
A relevant product market means a market which includes all those products and/or services, which are regarded as interchangeable or substitutable by the consumer by reason of the products' characteristics, their prices and their intended use. Hence, in determining the relevant product market, the interchangeability or substitutability of the products by the consumer is taken into account.
In addition to the above-stated, according to the Paragraph 20 of the Guidelines on the Definition of Relevant Market3 ("Guidelines"), "...in case the transaction under examination does not pose concerns for competition within the framework of potential alternative market definitions in terms of both product and geography, or in case there are competition distorting effects for all alternative definitions, a market definition may not be prepared."
In this regard, the Board has decided not to determine the relevant product market since the operation will not create competition concerns even though the market is defined in the strictest manner. However, the Board has not explained in the decision why the operation will not create such competition concerns although the Board decisions shall involve the grounds and the legal basis as per Article 52(h) of the Competition Act. Within this scope, the Board decision is likely to be criticized.
Relevant Geographic Market
A relevant geographic market means a market, which comprises the area in which the firms concerned are involved in the supply of products or services and in which the conditions of competition are sufficiently homogeneous and which can be disassociated from neighborhood markets because competitions conditions are sensibly different therein.
In the said case, the Board has determined that relevant geographic market as Turkey.
The Communiqué No. 2010/4 refers for the first time to the notion of "affected market" and stipulates that in such case the long notification form shall be filled.
The affected market is relevant product markets that might be affected by the transaction to be notified and where (a) two or more of the parties are commercially active in the same product market (horizontal relationship) or (b) at least of one of the parties is commercially active in the downstream or upstream market of any product market in which another party operates in (vertical relationship).
The Board, in the said case, determined that there is a horizontal relationship between the parties and thus the affected markets are respectively the "packed water market", the "aromatized mineral water market" and the "mineral water market". However, the Board did not define the notion of "affected market" in the decision and did not point out the importance of the affected market within mergers and acquisitions.
Board Analysis and Findings
The Board examined the operation respectively for every affected market:
Packed Water Market. The Board determined that after the operation of acquisition, Danone's total market share would be 10% - 15% and that Danone would rise to the second rank in the relevant product market. In addition, Nestlé will preserve its dominant position in the packed water market through its brands Erikli ve Pure Life. As to the water cooler bottle market, the Board determined that Danone market share will increase to 0,5%.
In the light of the foregoing, the Board concluded that the operation would not create a dominant position or strengthen a dominant position in the packed water market.
Mineral Water Market. The Board determined that after the operation of acquisition, Danone's total market share would be 5% - 10% and that Danone would be in the third rank in the mineral water market after Kızılay and Uludağ. Thus, the Board also concluded that the operation would not create any competition concern in the mineral water market either.
Aromatized Mineral Water Market. The Board determined that after the operation of acquisition Danone's market share would be 20%- 30% in the aromatized mineral water market, that the market share of its closest competitor Uludağ would be 15%- 20%, followed by Freşa, which will have a market share of 10%- 15%. Thus, the Board concluded that Danone would be in dominant position in the aromatized mineral water market.
However, the Board stated that the aromatized mineral water market is competitive market since it is a fast-growing market and that the undertakings' market shares active in the market vary in years. Thus, the Board concluded that the operation would not create a dominant position or strengthen a dominant position in the aromatized mineral water market.
The Board applied in the decision the two steps test. Hence, the Board examined first the dominant position in conformity with the Competition Act and determined that the said operation will create a dominant position in the relevant market. Then, the Board examined whether the competition will be strengthened due to the dominant position and concluded that the dominant position will not significantly distort the competition in the relevant market.
Evaluation of Ancillary Restraints
There are two ancillary restraints within the said operation of acquisition: non-compete and non-employment obligations and restraint of intellectual property rights usage.
The most important criterion in order that an ancillary restraint is allowed under Turkish competition law is that the ancillary restraint is directly related and necessary within the operation of merger or acquisition4.
Non-Compete and Non-Employment Obligations. Even though the operation has not the characteristic of a joint venture, the Board concluded that the non-compete and non-employment obligations should be considered as ancillary restraints since they are directly related and necessary within the operation of acquisition. Indeed, both Dişli Holding A.Ş. and Karabacak Holding A.Ş. will continue to be the shareholders of Sırma and they will have a right of access to delicate commercial information of Sırma.
Restraint of Intellectual Property Rights Usage. The said restraint aims to prevent any damage to be suffered by Sırma and the economic depreciation of the operation of acquisition, which may be caused by the similarity between the names Sırmakeş and Sırma. However, the activities of Kaynaksu in the regions where the water branded Sırmakeş are produced and distributed are not within the scope of this restraint. Moreover, such restriction does neither prevent the production and distribution of similar products under another brand. Within this framework, the Board concluded that this restraint is directly related and necessary within the operation of acquisition and thus considered this restraint as an ancillary restraint.
The said decision is an extremely important decision in terms of mergers and acquisitions for Turkey since all important matters are examined:
- The affected markets are determined. However, it would be more appropriate had the Board defined this notion and explain its importance within mergers and acquisitions.
- The two-steps test is applied and within this scope it is determined that the said operation will not cause competition concerns in the relevant market.
- Ancillary restraints are examined and within this scope it is determined that they may be allowed since they are directly related and necessary within the operation of acquisition.
1 In order to reach decision, see: http://www.rekabet.gov.tr/File/?path=ROOT%2fDocuments%2fGerek%C3%A7eli+Kurul+Karar%C4%B1%2f13-32-426-188.pdf (accessed on: 24.10.2013)..
2 In order to reach the Communiqué no:2010/4, see: http://www.rekabet.gov.tr/File/?path=ROOT%2FDocuments%2FCommuniqu%25c3%25a9%2F2010_4ing.pdf (accessed on: 24.10.2013).
3 In order to access to Guidelines, please look at: http://www.rekabet.gov.tr/File/?path=ROOT/Documents/Guide/kilavuz8.pdf (accessed on 25.10.2013).
4 For further information, please see the article entitled "Non-Compete Agreements" Within Mergers and Acquisitions", http://www.erdem-erdem.av.tr/en/articles/non-compete-agreements-within-mergers-and-acquisitions/ (accessed on: 01.11.2013).
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