Turkey: No Room for Competition within the Family —Family Links under the Turkish Merger Control Regime: The Turkish Competition Board Unconditionally Approved the Transaction Concerning the Acquisition of Sole Control over Mavi by the Akarhlar Family

Last Updated: 22 October 2018
Article by Gönenç Gürkaynak Esq

Most Read Contributor in Turkey, October 2018

The Turkish Competition Authority ("Authority") announced, on its official website, the Board's reasoned decision granting unconditional approval to the transaction concerning the indirect acquisition of negative sole control over Mavi Giyim Sanayi ve Ticaret A.Ş. ("Mavi") by the Akarhlar Family (which consists of Fatma Elif Akarlilar, Seyhan Akarhlar and Hayriye Fethiye Akarhlar).[1] In its decision, the Board primarily assessed whether separate undertakings controlled by different members of the same family could be deemed as part of a single economic unit under the Turkish merger control regime. In this respect, this decision can be seen as one of the most illuminating and informative decisions on this issue, in which the Board reflected on and refined its settled practice on the concept of "single economic unit" by evaluating the notions of "common interests" and "family links"

In terms of the assessment of whether the transaction in question would require a mandatory merger control filing before the Authority, the Board primarily evaluated whether there would be a lasting change in the control structure of Mavi after the completion of the transaction. To that end, the Board referred to paragraph 40 of the Guidelines on Cases Considered as a Merger or Acquisition and the Concept of Control ("Guidelines on Control"), and declared that sole control could be established in two general situations: (i) when the undertaking acquiring control enjoys the right to determine the strategic commercial decisions of another undertaking, and (ii) when the party acquiring control would be the sole undertaking that would possess the right to veto the strategic commercial decisions of another undertaking, even though it does not have the power, on its own, to impose such decisions ("negative sole control"). As per the information provided within the merger control filing, the Board determined that the control structure of Mavi prior to the transaction had been based on and subject to shifting alliances, given that the company was not under the joint control of a group of shareholders or solely controlled by a single shareholder. The Board further concluded that Mavi would be under the negative sole control of the Akarlilar Family after the transaction was completed, given that they would be the only shareholders possessing veto rights.

In order to determine whether the transaction would be subject to a mandatory merger control filing before the Authority, the turnovers of the undertakings that were involved in the transaction had to be calculated. In this respect, the Board first assessed whether Erak Giyim Sanayi ve Ticaret A.Ş. ("Erak"), which was controlled solely by Sait Akarlilar (who is the husband of Hayriye Fethiye Akarlilar and the father of Fatma Elif Akarhlar and Seyhan Akarhlar and also the founder of Mavi), could be deemed as part of a single economic unit with the Akarlilar Family. Although the parties suggested that Sait Akarlilar should be deemed and treated as a separate entity from the Akarhlar Family, due to the fact that he was not part of the control structure of Mavi, the Board chose to thoroughly assess the notions of "family links" and "common interests" before coming to a decision.

In this respect, the Board stated that, in order to determine whether different undertakings could be considered as parts of the same economic unit, the following factors must be evaluated: (i) the presence of economic relationships and family links between natural persons and/or groups, (ii) the roots of such economic relationships along with their nature, characteristics and extent, (iii) independent activities of the undertakings in question, if any, and (iv) whether there are common interests between the undertakings in question. To that end, the Board stated that, in terms of the relationships between natural persons, the notion of "common interests" relates to the elimination of the motivation to compete with one other, rather than to the concept of control.

In its assessment, the Board referred to its Bilkom[2] and Altıparmak Gıda[3] decisions, in which companies owned by siblings had been deemed as parts of the same economic unit on the grounds that, within such relationships, common interests are strengthened by family links. In its Altıparmak Gıda decision, the Board had also stated that the fact that the companies controlled by siblings were conducting their activities in the same relevant product market supported the finding of a commonality of interests between those siblings. Furthermore, the Board also referred to its Misbis decision,[4] where it had argued that an undertaking that was jointly controlled by five siblings who each held an equal number of shares should be considered as part of a single economic unit with an undertaking that was solely controlled by one of those siblings.

After comprehensively evaluating the principles on the commonality of interests and family links, the Board concluded that, for the case at hand, the existence of strong family links was plainly indicated by the facts presented in the case file. In this respect, by taking into consideration (i) the fact that Sait Akarhlar was a long-time shareholder of Mavi, along with other members of the Akarlilar Family, and (ii) the fact that Erak, which was solely controlled by Sait Akarlilar, was an active producer in the relevant product market (in which Mavi was active as a retailer), the Board finally concluded that Erak should be deemed as part of the same economic unit with the Akarhlar Family within the meaning of the Turkish merger control regime, given that an economic commonality of interests beyond family links existed between members of the Akarlilar Family. Therefore, the transaction was found to be subject to a mandatory merger control filing, in accordance with Article 7 of the Communiqué No. 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board.

In terms of the assessment of the potential overlaps between the activities of the parties, the Board determined that Mavi was active in retail sales, wholesale activities and e- commerce activities for denim/jean textile products, and that the Akarlilar Family (through Erak) was active in the production of ready-to-wear textiles and provided denim / jean products to numerous undertakings, including Mavi. Accordingly, the Board found that there was a vertical relationship between the activities of Mavi and Erak. Having said that, the Board also concluded that the market shares of the parties were significantly low and that the sector in which the parties were active was highly competitive. Accordingly, the Board decided to grant an unconditional approval to the acquisition of sole control over Mavi by the Akarlilar Family.

[1] The Board's decision numbered 18-07/121-65 and dated March 8,2018.

[2] The Board's decision numbered 01-03/10-3 and dated January 9,2001.

[3] The Board's decision numbered 10-27/393-146 and dated March 31,2010.

[4] The Board's decision numbered 07-85/1039-401 and dated November 8,2007.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in September 2018. A link to the full Legal Insight Quarterly may be found here.

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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