Turkey: Enthusiasm Of Turkish Merger Control Regime To Catch The Joint Ventures Established Outside Of Turkey

Last Updated: 17 April 2019
Article by Hazar Basar and Bora Ikiler

The mandatory notification requirement for the joint ventures, which will be established outside of Turkey, under Turkish merger control regime has always been a recondite issue for both local and foreign companies. Particularly, if the joint venture is structured as an undertaking that will not have any commercial activities in Turkey, the question on whether such transaction is subject to mandatory merger control filing before the Turkish Competition Authority (the "Authority") boils down to the implementation of "effect theory".

In this respect, this article aims to provide an elaborative insight on when transactions concerning formation of joint venture would require to be notified before the Authority and what are the legal consequences of violation of suspension requirement within the meaning of Law No. 4054 on Protection of Competition ("Law No. 4054").

Conditions for Notification Requirement under Turkish Merger Control Regime

Under Communiqué No. 2010/4 on Mergers and Acquisitions Requiring the Approval of the Competition Board ("Communiqué No. 2010/4"), three cumulative conditions should be met in order for a transaction to be deemed as subject to mandatory merger control filing in Turkey:

(i) There should be a permanent change of control as a result of the transaction,

(ii) One of the alternate turnover thresholds set forth under Article 7 of Communiqué No. 2010/4 should be satisfied,

(iii) As per Article 5(3) of Communiqué No. 2010/4, joint ventures that permanently meet all functions of an independent economic entity (full-function) are deemed notifiable. In this respect, only full-function joint ventures constitute concentration subject to mandatory merger control filing before the Authority1.

With regard to the first condition, according to Article 5(2) of Communiqué No. 2010/4, the term of "control" refers to the right conferring the opportunity to exercise decisive influence on strategic business decisions such as approval of annual budget, assignment of senior management, approval of annual business plans etc. Therefore, simple minority rights or other interests mainly aiming to protect the investments of shareholders do not grant control rights unless minority interests are granted with certain veto rights for the said strategic business decisions. To that end, in order for joint ventures to be deemed as concentration within the scope of Communiqué No. 2010/4, none of the control acquiring parties should be capable of either taking strategic business decisions without the consent of another parent company or creating a deadlock by using its veto rights.

The second condition consists of two different turnover thresholds for the purposes of notifiability analysis of the joint ventures under Article 7 of Communiqué No. 2010/4. In this respect, the transaction concerning the acquisition of joint control would require mandatory merger control filing if one of the following turnover thresholds are exceeded:

(i) the aggregate Turkish turnover of the transaction parties exceeds TL 100 million and the Turkish turnover of at least two of the transaction parties each exceeds TL 30 million;

(ii) the Turkish turnover of the transferred assets or businesses2 in acquisitions3 exceeds TL 30 million and the worldwide turnover of at least one of the other parties to the transaction exceeds TL 500 million. 

That being said, in terms of notifiability analysis for joint ventures that does not have any activities in Turkey, only the first turnover threshold would be applicable given that greenfield joint ventures does not generate any turnover prior to their incorporation.

In terms of calculation of the parent companies' turnover, it should be noted that the Turkish merger control regime does not require physical presence of parent companies through their subsidiaries or affiliated entities or branches incorporated in Turkey. Mere sales from abroad into the markets in Turkey would be sufficient to conclude that the parent companies are active in Turkey, and thus, they have generated Turkish turnover.

As stated above, only full-function joint ventures could be subject to mandatory merger control filing in Turkey (see footnote 2 for an exception of this rule). In this respect, the Guideline on Cases Considered as Mergers and Acquisitions and the Concept of Control provides the following criteria for determination of whether the joint venture is full-function:

(i) The joint venture should have sufficient resources to operate independently;

(ii) The activities of the joint venture should go beyond one specific function of its parent companies;

(iii) The joint venture should be independent from its parent companies in sale and purchase activities;

(iv) The joint venture should operate in the market on a lasting basis.

Foreign-to-Foreign Transactions under Turkish Merger Control Regime

Turkish merger control regime does not treat the foreign-to-foreign transactions separately given that Article 2 of Law No. 4054 on Protection of Competition ("Law No. 4054") implies that even foreign-to-foreign transactions fall within the scope of Turkish merger control regime to  the extent that they affect any of the relevant markets within the borders of the Republic of Turkey. Therefore, even none of the parties has presence in Turkey but mere sales into Turkey, such transaction could require mandatory merger control filing to be submitted before the Authority.

Further, a transaction concerning formation of a joint venture would be notifiable given that the parent companies' turnover figures trigger the turnover thresholds even if the joint venture will not be active in Turkey.

The Board's Eksim/Rönesans decision (16.05.2012; 12-26/759-213) sets an outstanding example demonstrating the Board's interpretation on how "effect theory" is applied in Turkey. The decision concerned the formation of a joint venture in Kuwait. After the consummation of the transaction, the joint venture was planned only to be active in Kuwait. In this respect, the transaction was not leading to "potential" sales into Turkey. Although the Board recognized that the transaction would not directly affect the relevant markets in Turkey, it concluded that the parties to the transaction, which are active in Turkey, could increase their turnovers and, accordingly, their market powers in Turkey as an indirect result of the transaction. Thus, the Board found that the formation of joint venture in Kuwait was notifiable in Turkey by way of providing a broad interpretation of Article 2 of Law No. 4054.

Furthermore, in Galenica/Fresenius (24.11.2011; 11-59/1515-540), although the transaction concerned a joint venture to be incorporated outside of Turkey and the joint venture was not planned to be active in Turkey, the Board found the transaction notifiable merely by examining whether (i) there was a permanent change of control, (ii) the turnover thresholds were exceeded and (iii) the joint venture was of full-function character.

Although there are some exceptional cases4 in which the Board concluded that the formation of a joint venture does not fall within the scope of Turkish merger control regime as the transaction does not give rise to any effects in the relevant markets in Turkey, the Board seems to be insistent to review the transactions satisfying the notifiability conditions stated above regardless of the country of incorporation of the joint ventures.

Failure to Notify

In case that the parties to a transaction, which requires the approval of the Board, realize the transaction without notification or prior to the approval of the Board, certain penalties are provided within Law No. 4054. In order words, for such transactions, the Turkish merger control regime prohibits implementation prior to obtaining the approval of the Board. In this respect, under Turkish merger control regime, the parties to a transaction requiring the approval of the Board must suspend implementation of such transaction (regardless of the type of deal) until obtaining the approval of the Board. Violation of suspension requirement is generally called as "gun jumping" violations and results in significant monetary sanctions and other legal consequences.

As per Article 11(1) and Article 16(1)(b) of Law No. 4054, violation of suspension requirement would result in imposition of administrative monetary fine of 0.1% of the turnover generated in the financial year preceding the date of the fining decision on the incumbent undertakings. If such turnover is not calculable as of the date of the fining decision, the fine will be calculated based on the turnover generated in the financial year nearest to the date of the fining decision.

Accordingly, in terms of formation of joint ventures, which is deemed as an acquisition if the joint venture will permanently meet all functions of an independent economic entity, the administrative monetary fine for violation of suspension requirement would be levied on the control acquiring parties. In terms of mergers, both merging parties would bear the fine.

At this point, it is crucial to note that imposition of administrative monetary fine based on violation of suspension requirement does not in any way depend on whether or not the Board grants its approval on the transaction. Moreover, the wording of Article 16 of Law No.4054 does not give discretion to the Board on whether or not to impose an administrative monetary fine in case that the transaction requiring the approval of the Board is realized without or prior to the approval of the Board. Thus, once the parties to the transaction fail to notify the transaction and such violation is detected by the Board, the administrative monetary fine mentioned above will be ipso facto imposed.

According to Article 11(1)(b) of Law No. 4054, if (i) a transaction subject to notification requirement in Turkey realized without or prior to the approval of the Board and (ii) such transaction is found by the Board as infringing Article 7 of Law No. 4054 (which prohibits the transactions creating or strengthening a dominant position, thereby significantly restricting competition in a relevant market), the Board will impose an administrative monetary fine up to 10% of the transaction parties' turnovers along with other legal sanctions.

Invalidity of the Transaction

If a transaction requiring the approval of the Board is realized without or prior to the approval of the Board, such transaction would be deemed legally invalid and cannot be effectively implemented as it does not create any legal consequences until the Board grants its approval. 

Termination of Infringement and Interim Measures

According to Article 11(1)(b) of Law No. 4054, in case that the Board concludes after its review that the transaction violates Article 7 of Law No. 4054, the Board instructs the parties to abolish the transaction and extinguish all de facto legal consequences of every action that has been taken unlawfully. In other words, the parties must take all necessary actions to reverse the current de facto situation to the pre-transaction status. Such actions include return of all shares and assets acquired as a result of the transaction prohibited by the Board. If it is not possible to completely turn back to the status existed before the consummation of the transaction, the Board may instruct to take all necessary measures including the transfer of shares and assets to the third parties so that pre-transaction level of competition is protected. Meanwhile, the Board could also forbid participation of the parties in control until the assignments to restore the pre-transaction status are completed.

Moreover, if it is deemed necessary, the Board can take interim measures until the final resolution on the matter in cases where there is a possibility for serious and irreparable damages to occur.

When do the transactions establishing a greenfield joint venture5 realized/implemented under Turkish merger control regime?

As per Article 10(8) of Communiqué No. 2010/4, the implementation date of a transaction is the date on which "change of control" occurred. In this respect, determining when a transaction concerning acquisition of shares, rights, assets etc. is deemed "realized" or "implemented" under Turkish merger control regime is relatively straightforward. That being said, for greenfield joint ventures, it is more difficult to determine whether incorporation of a joint venture is sufficient to determine if suspension requirement is violated. Or is it necessary for a greenfield joint venture to commercially start operating in a relevant market in order to raise concerns for violation of suspension requirement?

In Tekno Ray6 and Anayurt7 decisions, the Board concluded that de jure change of control, which is incorporation for greenfield joint ventures, is sufficient for determination of violation of suspension requirement regardless of whether the greenfield joint venture started to conduct commercial activities. 

That said, in its ATG8 decision, the Board took a different position by considering that mere incorporation of ATG cannot trigger violation of suspension requirement given that ATG would become a full-function joint venture only when the construction required to start operating has been completed, adequate personnel are employed and there is an office building. In this respect, it could be interpreted that the Board deemed the initiation of commercial activities as the actual implementation of the transaction subject to mandatory notification requirement in Turkey.

Taking into account the presence of different positions on this front, the safe approach would be to notify the transaction before the incorporation of the joint venture (de jure implementation).

Conclusion

As evident from the foregoing, formation of joint ventures, which will not be active in Turkey, could be subject to mandatory merger control filing in Turkey if the parent companies are currently active in Turkey. For such cases, it could be concluded that the presence and market activities of the parent companies, and accordingly their turnover generated in Turkey, trigger the notification requirement as it is presumed that the post-transaction situation could indirectly affect the structure of the relevant markets in Turkey and market powers of parent companies in those markets. Nonetheless, it is still understandable to question why notification is required for such joint ventures and the limits of the Board's approach towards the implementation of "effect theory" under Article 2 of Law No. 4054.

All in all, as indicated above, the monetary sanctions provided for violation of suspension requirement would be unexpectedly burdensome for companies. Moreover, this burden could be doubled with other administrative sanctions imposed by the Board. In this respect, we would like to highlight the fact that your joint venture to be established and operate activities outside of Turkey could require a notification before the Authority in Turkey regardless of the lack of affected markets or even potential activities in Turkey.

Footnotes

1 According to paragraph 78 of the Guidelines on Mergers and Acquisitions Requiring the Approval of the Board and the Concept of Control, acquisition of joint control over an undertaking would cause a structural change in the market even if the acquired undertaking will not be deemed as a full-function joint venture after the consummation of the transaction. In this respect, transactions concerning acquisition of joint control over an undertaking or a part of it by a couple of undertakings from third parties would be subject to mandatory merger control filing before the Turkish Competition Authority even if the joint venture will not be deemed as full-function, provided that the acquired undertaking or part of it has an attributable turnover.

2 In terms of mergers, the Turkish turnover of any of the parties should exceed TL 30 million in order for the merger transaction to trigger notification requirement in Turkey.

3As per Article 5(3) of Communiqué No. 2010/4, a transaction concerning formation of a full-function joint venture is deemed as an acquisition within the meaning of Communiqué No. 2010/4. Thus, for a notifiability analysis under second condition set forth above, the turnover figures of joint ventures as the transferred business should be taken into account.

4 E.g. The Board's Sorgenia/KKR decision dated 14.07.2011 and numbered 11-43/919-288.

5 The term "greenfield joint venture" refers to a joint venture which does not have any activities prior to its incorporation.

6 The Board's decision dated 23.02.2012 and numbered 12-08/224-55.

7 The Board's decision dated 25.06.2014 and numbered 14-22/422-186.

8 The Board's decision dated 16.07.2014 and numbered 14-24/488-218.

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
Ketenci & Ketenci Hukuk
 
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”

Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Ketenci & Ketenci Hukuk
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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