Turkey: Turkish Merger Control: Is Your Joint Venture Subject To Notification To The Turkish Competition Authority?

Under the Communiqué No. 2010/4 on Mergers and Acquisitions Subject to the Approval of the Competition Board ("Communiqué No. 2010/4"), joint ventures may also be subject to a mandatory merger control notification to the Turkish Competition Authority if the necessary requirements are met.

To identify whether a joint venture transaction should be notified to the Turkish Competition Authority, observe the following steps:

Step 1: Identify the type of the Joint Venture:

Article 5/3 of the Communiqué No. 2010/4 defines a joint venture as an entity that permanently fulfills all functions of an independent economic entity. In other words, for a joint venture to be subject to a mandatory merger control notification, the joint venture must be a full function joint venture.

A joint venture is considered as fully functional if the following criteria are met:

  1. The joint venture has the necessary resources to operate independently.
  2. The joint venture should have a purpose other than to fulfill a function for its parents.
  3. The joint venture should not be dependent on its parents for sales and purchases.
  4. The joint venture should be formed to operate permanently.

Step 2: Calculate the turnover thresholds:

The formation of a full function joint venture that fulfills all of the above criteria will be considered as an acquisition transaction under Article 5/3 of the Communiqué No. 2010/4 (i.e. the notification thresholds for acquisition transactions will be applied to the joint venture to determine whether it should be notified to the Turkish Competition Authority). In this respect, each parent of the joint venture is regarded as a buyer and the assets that make up the joint venture are regarded as the target.

Thus, joint ventures should be notified to the Turkish Competition Authority if the following thresholds are exceeded in the year preceding the date of the notification:

  1. the aggregate Turkish turnovers of the transaction parties exceeds TRY 100 million and the Turkish turnovers of at least two of the transaction parties each exceed TRY 30 million; OR
  2. the Turkish turnover of the transferred assets or businesses (i.e. the target) exceeds TRY 30 million and the worldwide turnover of at least one of the other parties exceeds TRY 500 million.

To make it easier to understand the calculation, we can group joint ventures into two categories:

  1. Newly established joint ventures where the parent companies do not transfer any assets that generated a turnover in the previous year:

The Turkish Competition Authority's "Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints in Mergers and Acquisitions" state that, if the parties to a joint venture do not transfer any assets to the joint venture, such a transaction will not exceed the second threshold, since there will not be any target to include in the threshold calculation.

In such a case, the only way such joint venture will be subject to a mandatory merger control notification is if the first threshold is exceeded by the parent companies (i.e. the aggregate Turkish turnovers of the parent companies exceeds TRY 100 million and the Turkish turnovers of at least two of the parent companies each exceed TRY 30 million).

  1. Newly established joint ventures where the parent companies are transferring assets that have generated turnover in the previous year OR acquisition of joint control over an existing company/asset:

In this case, the assets that are being transferred to the newly established joint venture by the parent companies or the existing company/asset over which joint control is acquired will be considered as the target company and the parent companies will be considered as buyers for the sake of the calculation. Therefore, since there is a "target", both of the above thresholds will be applicable.

Example: Parent A and Parent B are forming a new joint venture. Parent B will transfer Factory X to the joint venture. The respective turnovers of the parties are as follows:

Parent A: TRY 60 million in Turkey and TRY 700 million worldwide.
Parent B: TRY 80 million in Turkey and TRY 100 million worldwide (excluding Factory X).
Factory X: TRY 90 million in Turkey.

Now let's apply these turnover figures to the thresholds:

  1. the aggregate Turkish turnovers of the transaction parties exceeds TRY 100 million and the Turkish turnovers of at least two of the transaction parties each exceed TRY 30 million;

    1. Parent A (TRY 60 million in Turkey) + Parent B (TRY 80 million in Turkey) + Factory X (TRY 90 million in Turkey) = TRY 230 million
    2. All three parties exceed TRY 30 million in Turkey.
    3. This threshold is met! 
  2. the Turkish turnover of the transferred assets or businesses (i.e. the target) exceeds TRY 30 million and the worldwide turnover of at least one of the other parties exceeds TRY 500 million.

    1. Factory X (i.e. the target) exceeds TRY 30 million in Turkey.
    2. Parent A (TRY 700 million worldwide) exceeds TRY 500 million worldwide.
    3. This threshold is also met! 

Following the above steps will allow you to correctly determine whether your transaction will be subject to a mandatory merger control notification in Turkey.

As always, contact a Turkish competition law expert when in doubt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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