Turkey: Green-Light To The "Green Car Project The Board Granted Negative Clearance To A Joint Venture Between Turkcell, Anadolu Group, Zorlu, Kök Ulaşım, BMC And TOBB

The Board published its reasoned decision1 on the formation of a joint-stock company ("JV") by (i) Turkcell İletişim Hizmetleri A.Ş. ("Turkcell"), (ii) Turkcell Gayrimenkul Hizmetleri A.Ş. ("Turkcell Gayrimenkul"), (iii) AG Anadolu Grubu Holding A.Ş. ("Anadolu Group"), (iv) Zorlu Holding A.Ş. ("Zorlu"), (v) Vestel Elektronik Sanayi ve Ticaret A.Ş. ("Vestel"), (vi) Kök Ulaşım Taşımacılık A.Ş. ("Kök Ulaşım"), (vii) BMC Otomotiv Sanayi ve Ticaret A.Ş. ("BMC"), and (viii) the Union of Chambers and Commodity Exchanges of Turkey ("TOBB") (together with Turkcell, Turkcell Gayrimenkul, Anadolu Group, Zorlu, Vestel, Kök Ulaşım and BMC, the ("Parties") for the purpose of designing, developing, producing, and marketing electrically powered and new generation cars, along with the production of their spare parts, and the provision of maintenance and repair services within the scope of "Turkey's Automobile" project ("Transaction").

In its review of the Transaction, the Board first conducted an examination as to whether the Transaction could be considered as an "acquisition" within the meaning of Article 7 of the Law No. 4054 and the Communiqué No. 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board ("Communiqué No. 2010/4").

To that end, the Board first reiterated that the formation of a greenfield joint venture is deemed as an "acquisition" under Article 5(3) of the Communiqué No. 2010/4, provided that the joint venture is (i) jointly controlled by the parent companies, and (ii) an independent economic entity (i.e., full function JV) that is established on a lasting basis. In this regard, the Board examined the joint control criterion in light of the contemplated shareholding structure of the JV (i.e., 19% of shares held by Anadolu Group, 19% by BMC, 19% by Kök Ulaşım, 19% by Turkcell Gayrimenkul, 19% by Vestel, and 5% by TOBB) and the relevant provisions of the Share Purchase Agreement ("SPA") regarding the meeting and voting quorum requirements of the JV's general shareholders meetings and its board of directors.

According to the SPA, with regard to the general shareholders meetings, the quorum (i) for significant resolutions was 75% of the share capital of the JV, and (ii) for the remaining matters, it was the majority provided under the Turkish Commercial Code No. 6102. In this regard, the Board found that both significant resolutions and the remaining matters would require a majority constituted by different combinations of the JV's shareholders, and thus determined that no single party would enjoy veto rights over these matters.

In terms of the resolutions of the board of directors, according to the SPA, the Parties would be able to nominate members of the board of directors in accordance with their shareholding percentages. In other words, Turkcell, Anadolu Group, Zorlu, Kök Ulaşım and BMC would be entitled to appoint a certain number of board members, which would be different than the number of board members appointed by TOBB (the details of this arrangement were redacted in the Board's reasoned decision for confidentiality purposes). In this regard, the Board held that the meeting and voting quorum rules provided under the SPA enabled different combinations of board members to cast the decisive vote on significant resolutions and on nonsignificant (i.e., remaining) matters.

In view of the fact that the meeting and decision quorums for the JV's general assembly meetings and its board of directors could be achieved through various alliances and different combinations of shareholders (i.e., these quorums were subject to shifting alliances), the Board concluded that there would be no stable majority in the decision-making process of the JY. As a result, the Board determined that the JY would not be jointly controlled by the Parties, and hence, the Transaction was not an "acquisition" within the meaning of Article 7 of the Law No. 4054 and the Communiqué No. 2010/4.

The Board then evaluated the Transaction within the scope of Article 4 of the Law No. 4054, which applies to agreements between undertakings, and conducted an assessment as to whether the SPA and the Articles of Association (together referred to as "Transaction Agreements") could benefit from the block exemption regime under the Block Exemption Communiqué No. 2013/3 on Specialization Agreements ("Communiqué No. 2013/3"). In this regard, the Board first characterized the SPA as "a joint production agreement whereby two or more parties that are active in the same product market or aiming to enter a new market through specialization, undertake to jointly produce specific products," which is listed among the agreements that may benefit from the protective cloak of the block exemption regime provided under Article 5(c) of the Communiqué No. 2013/3.

To that end, the Board first looked into whether the Transaction had the object of restricting competition. Referring to the Guidelines on Horizontal Cooperation Agreements, the Board noted that, in cases where the parties agree on matters directly concerning production agreements (such as the capacity and production volumes of a joint venture or the amount of products that would be outsourced to third parties, etc.), the agreement does not amount to a restriction of competition by object, provided that the agreement in question does not restrict or eliminate other parameters of competition. In light of this principle, the Board decided that the Transaction did not have the object of restricting competition, despite the fact that the JV would be active not only in the production of electrically powered cars, but would also enable the Parties to determine (i) the number of cars produced and sold by the JV, (ii) sales territories, and (iii) prices.

The Board also examined the relevant market dynamics by taking into consideration the specific features of the market involved herein, namely the market for "electrically powered vehicles.2" Accordingly, the Board observed that this is a rapidly evolving and highly dynamic market, which requires high levels of investment, sophisticated distribution networks, and technical expertise. Taking these facts into consideration, the Board concluded that the Parties would be unable to carry out production by their own means, and therefore, the SPA was unlikely to create any anticompetitive effects.

Furthermore, bearing in mind that production agreements are unlikely to pose a constraint on competition when the parties involved in the agreement do not enjoy high market powers, the Board analysed the market shares attributed to the Parties' overlapping activities in order to assess the effects of the Transaction on competition. In this regard, the Board found that Anadolu Group and Kök Ulaşım (through its affiliated company, Karsan) were active in the market for passenger cars and light commercial vehicles, while BMC was active in the market for heavy commercial vehicles. In light of the fact that these two markets are related to one another, the Board reviewed the market shares of Anadolu Group, Karsan and BMC in the markets for both (i) passenger cars and light commercial vehicles, and (ii) heavy commercial vehicles, and concluded that they did not reveal or indicate any elevated market power that would raise any competition law concerns. The Board reached a similar conclusion with regard to the markets for electricity generation (in which Zorlu is active through a subsidiary) and electricity distribution (where Turkcell is a retailer of electricity services). With respect to the battery manufacturing market, in which the affiliates of TOBB and Zorlu are active, the Board deemed that the market shares of these undertakings were unlikely to result in constraints on competition, as TOBB's activities concerning batteries focused on the defense industry, while Zorlu's activities primarily concerned electric vehicles.

Finally, the Board determined that, since the JV would essentially produce electrically powered vehicles (and would not manufacture products that would be used as inputs for the Parties' businesses), the Transaction would not lead to "commonality of costs". Moreover, the Board found that the SPA did not include any provisions that would give rise to a collusive outcome or bring about an information exchange leading to market foreclosure.

As a result, the Board ultimately concluded that the SPA and the JV did not have the object or effect of restricting competition. Therefore, the Board granted negative clearance to the Transaction Agreements, pursuant to Article 8 of the Law No. 4054.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in March 2019. A link to the full Legal Insight Quarterly may be found here.


1. The Board's decision dated September 26,2018, and numbered 18-34/566-279.

2. Taking into account the current market positions of the Parties in the automobile sector, and considering that none of the Parties had produced electrically powered cars prior to the Transaction, the Board did not find it necessary to provide a precise relevant product market definition in this case, and hence, left the relevant product market definition open.

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