Turkey: Merger Control: Conglomerate Mergers

Last Updated: 25 July 2018
Article by Göktuğ Can Burul

It is evident that merger control takes an important place in competition law practice in every jurisdiction. This is because many jurisdictions require mergers to be notified ex ante. This results in many mergers being reviewed by the competition authorities. Jurisdictions need to adopt a definition of a merger and generally these definitions are designed broadly in order to include a vast number of transactions. However, this definition as to purpose of the merger control regulations changes as per jurisdiction.

In example, EU Regulation 139/2004 ("EU Merger Regulation") is applied to the "concentrations" which arise from a merger of formerly independent businesses, from a change of control in a business or from a joint venture. As such definition implicates, the applicability of EU Merger Regulation is arguably broad and a considerable number of transactions, which may result in a change of control of an undertaking. Similarly U.S. merger control regime, which is regulated by Clayton Act is also designed to include a substantive number of transaction. With regard to Turkish merger control regime, the definition of concentration is set out very similarly to EU Merger Regulation as Turkey follows EU competition law very closely.

Purpose of Merger Control

Mergers, when compared with agreements between undertakings, usually tend to leave lasting effects on the market. Nevertheless, it is evident that mergers may also create substantial efficiencies and gives the owner of a business the opportunity to sell his business. Moreover, mergers, by enabling the transfer of assets to the people who may use them in a most efficiency way, provide for the society's welfare. Mergers may help parties to reach the economies of scale, decrease the costs and increase the efficiency of research and development or distribution. Moreover, mergers also give a second option for the failing firms which are facing bankruptcy. Such option also prevents the unemployment and instability in the industry.

Despite such possible advantages or motives of mergers, they may have adverse effects on the market as well. In the simplest way, the motivation for parties in a merger may be their desire to enhance their market power. It is also evident that mergers were used for anticompetitive means along with trusts and pool agreements.

As a result, by merger control procedures, competition authorities aim to identify and prohibit mergers, which would result as having anticompetitive effects on the market and eventually detriment to the society.

Types of Mergers

From a competition law and merger control perspective, it is possible to separate mergers into three types: i) horizontal mergers, ii) vertical mergers, iii) conglomerate mergers.

Horizontal mergers can generally be defined as mergers between two or more competing undertakings. This means that the undertakings are active in the same product or service market. Distinctively from other types of mergers, horizontal mergers result in eliminating a competitor in the same market and naturally the market share of the merged entity post merger is higher. Therefore, horizontal mergers tend to raise the level of concentration the market, thus reducing the competitiveness. Because of such reasons, horizontal mergers usually are primary concerns for competition authorities, especially in highly concentrated markets.

While horizontal mergers consist of two or more competing undertakings in the same product or service market, vertical mergers are the mergers between the undertakings on different levels at the supply-chain of a specific product or service market. Even though vertical mergers may usually create efficiencies, they might also have adverse effects on the market. One of the main concerns regarding vertical mergers is the foreclosure effect that it may raise, making it harder for competitors to reach suppliers or distribution. In addition, vertical mergers may also raise two-level barriers of entry or ease the collusion between undertakings.

Last type of mergers, conglomerate mergers are defined as "mergers between firms that are in a relationship which is neither purely horizontal (as competitors in the same relevant market) nor vertical (as supplier and customer). Because of the fact that conglomerate mergers do not include undertakings competing horizontally, they do not raise obvious adverse effects. Nevertheless, it is generally accepted that conglomerate mergers may raise adverse effects on competition as well. The approach to conglomerate mergers and their anticompetitive effects are one of diverse aspects between U.S. and EU competition law practice.

Analysis of Conglomerate Mergers

One of the main concerns with regard to conglomerate mergers that they may create non-coordinated (unilateral) and coordinated effects, impairing the competition in the market. Non-coordinated effects of a merger results from the change in the market. As the name suggests, such effects are unilateral and rise in the absence of a tacit or explicit agreement whereas coordinated effects are caused by the coordination between undertakings in the market under an explicit or tacit agreement.

Possible Pro-Competitive Effects of Conglomerate Mergers

Some effects of conglomerate mergers may be pro-competitive, increasing the efficiency and enhancing welfare. First of all, conglomerate mergers may result in the realization of economies of scale. Economies of scale provide cost-savings for the undertakings, which further pass to the customers as lower prices. Even though this is not a result of enhanced competition in the market but increased efficiency of the undertakings, it enhances the welfare. Secondly, conglomerate mergers enable the undertakings to structure their business and distribute the risk. This may also enable the business to spare and invest more for innovation or increase their efficiency. Thirdly, when the products of two companies are complementary and dependent on each other, the cooperation and integration between the companies may have certain benefits.

Suppose there are two companies producing complementary products. Even though, one of these companies considers to reduce the price of its product (component) and thus they both sell one unit more due to price decrease in total, it may not do so since reducing the price results in total balance in profits for one company and raising the other's profits. On the other hand, when these two companies are integrated, they would have an incentive to reduce the price of one component since the sales would be more and the profits would stay in the integrated company. However, it must be noted that the effects raised from such integration is usually analyzed under vertical integration, separately from conglomerate effects.

Adverse Effects of Conglomerate Mergers

Adverse effects of conglomerate mergers may be examined under two main topic: i) Non-coordinated effects, which mostly concerns with foreclosure through tying and bundling and ii) coordinated effects with regard to the concern that a conglomerate merger may raise the level of or ease the coordination in the market. In addition, the loss or termination of potential competition is another possible adverse effect of conglomerate mergers.

While U.S. agencies see the impairment of potential competition as the only possible reason to prevent a conglomerate merger, in EU the mergers with the possibility to terminate the potential competition are currently reviewed under horizontal mergers.

Harm to Potential Competition

Non-Horizontal Merger Guidelines of 1982 of U.S. Department of Justice adopts the theory of potential competition as the adverse effect of non-horizontal mergers (including conglomerate mergers). Guidelines examine the theory in two aspects: i) harm to perceived potential competition and ii) harm to actual potential competition. Perceived potential competition is the perceived threat of the competition of the acquired party in the market. Accordingly, acquired party may be deemed as a potential competitor by the undertaking that are already active in the market, in example, limiting their ability to raise prices. On the other hand, actual potential competition is that the possibility of entry in a more precompetitive way. In other words, actual potential competition may be harmed when the acquirer enters the market by the merger instead of entering in a more precompetitive way.

In this direction, Department considers several factors in deciding whether the merger harms actual potential competition or perceived potential competition. These factors include, market concentration, entry (including the entry advantage of the acquiring firm).

Non-Coordinated Effects (Foreclosure)

The main concern of the EU Commission regarding the conglomerate mergers is the foreclosure through bundling or tying, leveraging strong market position into another market. It must be noted that these concern may only occur in a merger of companies in related markets. Regarding the foreclosure effect, Guidelines first examine the ability and incentive to foreclose, which may rise after the merger and then at last examine whether foreclosure has an adverse effect.

Following a conglomerate merger, the merged undertaking may leverage its market power in one market to the other by tying or bundling, "conditioning sales in a way that lings the products in the separate markets together.

Tying and bundling are generally accepted as common practices which customers can benefit from, specifically in cases where the products are complementary. However, it may also be possible for the merged entity where it would have the ability to execute such practices to the detriment of consumers. Nevertheless, for bundling and tying to harm competition and consumers, market power at leas in one market is necessary. Without the existence of a market power, it is possible to say that the customers will benefit from such practices. However, such market power does not have to be on the level of dominance pursuant to the Guidelines. Secondly, the tied or bundled products must have "a large common pool of customers" in order for the bundling or tying to have a significant effect. Thirdly, such practices are more likely to create foreclosure effects in industries with economies of scale.

On the other hand, there are other factors that may prevent the foreclosure effect and the ability to foreclose of the merged entity. The ability of competitors to counter-act against the anticompetitive behavior of the merged firm may prevent the ability to foreclose through bundling or tying.

The incentive of the merged firm to engage in tying or bundling in order to foreclose competitors depends on whether such strategy would be profitable or not. Even though tying and bundling may be used to achieve or expand the market power, it may also result in a loss in the sales since some customers may not choose to buy the product because of the bundle or tying.

Coordinated Effects

Like any merger, conglomerate mergers result in an elimination of an undertaking in a specific market. Accordingly, Guidelines also note that conglomerate mergers, in certain circumstances, may create coordinated effects. By the elimination of an undertaking, the coordination in a market may be more likely and easy. Additionally, foreclose on competitors may reduce their incentive to compete due to the loss in sales. In such case, competitors may prefer not to compete and hold on to higher prices.

Nevertheless, it must be noted that the likelihood of coordination in a market is dependent on several factors. Those include concentration in the market, symmetry between the companies, transparency and most importantly the barriers to entry.

Conclusion

It is evident that the merger control is a substantial part of competition law practice and assessment of conglomerate mergers remains important due to the discrepant practice between U.S. and E.U. Because of such discrepancy, there is a risk that a multi-jurisdictional conglomerate merger may be cleared in the U.S. whereas it is prohibited in E.U as the case of General Electric – Honeywell Merger.

It is possible to argue that the possible concerned adverse effects of conglomerate mergers may be prevented by ex-post control and prohibition of abuse of dominant position. Even though such argument may be countered by the claim that the merger control cannot be replaced by the prohibition of abuse of dominant position, the U.S. practice shows that together with the private actions, prohibition of abusive practices may provide sufficient deterrence.

Consequently, when the efficiencies may be realized by conglomerate mergers are taken into consideration, the utmost elaboration should be provided in the assessment of conglomerate mergers and they should not be prohibited unless the adverse effects are proven to be likely.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Oncel, Aydın, Duman & Uygun Attorney Partnership
Kolcuoglu Demirkan Kocakli Attorneys at Law
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Oncel, Aydın, Duman & Uygun Attorney Partnership
Kolcuoglu Demirkan Kocakli Attorneys at Law
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions