The Turkish Competition Board ("Board") recently published its reasoned decision1 concerning the acquisition of certain assets of Yildiz Sunta MDF Orman Ürünleri Sanayi Tesisleri Ithalat Ihracat ve Ticaret A.S. ("Yildiz MDF"), which was going through a composition with creditors and whose production activities had been ceased, by Yildizlar Yatirim Holding A.S. ("Yildizlar") or its current subsidiaries and/or subsidiaries to be established.

I. Why is the decision important?

The Board's decision stands out as there are only a few other cases where the failing firm defence was accepted and it demonstrates how the Board would assess whether a transaction satisfies the relevant conditions in a concrete manner. The decision gains further significance as it further delves into the concept of "unity of interest" and puts forth that the existence of family ties cannot be construed in a stand-alone basis to infer that there is unity of interest.

II. Board's Assessment on whether Yildizlar and Yildiz MDF constituted a single undertaking

Before delving into its substantive assessment concerning the transaction, the Board scrutinized whether Yildizlar and Yildiz MDF constituted a single economic unit (i.e. a single undertaking), due to kinship between certain persons that are involved in the management structure of the parties to the transaction. The Board found that the chairmen of the board of directors ("BoD") of Yildizlar and Yildiz MDF are brothers and also the chairman of Starwood Orman Ürünleri A.S.'s ("Starwood") BoD is their uncle. In this regard, the Board emphasized that, in terms of the undertakings that are controlled by natural persons, the fundamental matter is to clarify whether the relevant natural persons were in the same economic unit. The Board further elaborated that, persons with kinship who take active role in management structure of different firms, could be deemed to be in a single economic decision making mechanism depending on the character and level of the relations between such people2, and examined whether Yildizlar, Yildiz MDF and Starwood are in a single economic unit.

After evaluating the shareholding and management structures of Yildizlar, Yildiz MDF, Starwood and Yildiz Entegre Agaç San. ve Tic. A.S. ("Yildiz Entegre")3, the Board found that the respective shareholders and managers of Yildiz Entegre, Yildiz MDF and Starwood largely consisted of people who were relatives of each other, although none of them were simultaneously managers or shareholders of more than one of the respective undertakings. Furthermore, the Board indicated that although Yildiz Entegre was a minority shareholder of Yildiz MDF between 2012 and 2014, this was a symbolic shareholding and Yildiz Entegre never exercised control over Yildiz MDF. As a result, the Board resolved that these three undertakings were controlled by separate natural persons who were merely relatives of each other.

In accordance with the foregoing information, the customers of these undertakings indicated that (i) although they were active in the same industry, they had separate management, accounting and marketing departments; (ii) they have been perceiving each other as competitors, (iii) they had their own separate price lists for their products, (iv) it was possible to supply from these three undertakings separately, and (v) they assumed that it was possible to sustain the commercial relations with other two if a sales agreement with one is terminated. In addition to their customers' statements, the Board found that these undertakings were monitoring each other's prices through their respective dealers. Furthermore the Board underlined a correspondence between Yildiz MDF and Starwood, wherein it was expressed that they would not grant any privileges to each other.

In light of the foregoing, the Board concluded that Yildiz MDF, Yildiz Entegre and Starwood were controlled by different natural persons, their competitors and buyers considered these three undertakings as each other's competitors, therefore there was no unity of interest between the three undertakings and they should be considered as separate undertakings. The Board's assessment was similar to its assessment in its Paraffin decision4 where it resolved that although the two paraffin manufacturers in question were separately controlled by two brothers, there were no unity of interest between them, as they were competing with each other in the market and there were not any common members of their board of directors for the last five years

  • The merits of the case and the "failing firm" defence

In its assessment as to the merits, the Board first dealt with failing firm defence asserted by Yildizlar. In this respect, the Board acknowledged that there were three conditions for the failing firm defence to be accepted: (i) the allegedly failing firm would in the near future be forced out of the market due to financial difficulties if not acquired by another undertaking, (ii) there were not any less anti-competitive alternatives than the transaction under review, and (iii) if the transaction was not cleared, the assets of the allegedly failing firm would inevitably exit the market.

The Board indicated that the first condition was satisfied as Yildiz MDF ceased its production activities as of February 2019 and it was going through a composition with creditors. In terms of the second condition, the Board evaluated whether there were any undertakings other than Yildizlar that considered acquiring or investing in Yildiz MDF during the process of composition with creditors. In this respect, the Board found that although there were several foreign groups that had been negotiating with Yildiz MDF with the intent of acquiring it, these negotiations did not succeed. The Board further determined that there were no local or foreign investors, which were interested in acquiring Yildiz MDF, throughout the merger review process. As for the third condition, the Board indicated inter alia that Yildiz MDF's production has not been active during merger review and as a result of the transaction; the machinery/ equipment and facilities that were idle prior to the transaction could become active once again.

Moreover, consistent with its approach in its Dogan/Bagimsiz/Kemer decision5, the Board further scrutinized Yildiz MDF's debt structure and claimants to determine whether there had been collusion between the transaction parties that aims to benefit from the failing firm defence and bypass the relevant legislation. As a result of its scrutiny, the Board could not find any evidence indicating that Yildiz MDF became indebted to Yildizlar on purpose, to facilitate the acquisition by using the failing firm defence.

Lastly, the Board assessed whether the transaction would result in restriction of competition in the horizontally overlapping markets, namely, the markets for medium density fibreboards (MDF) and parquets. The Board analysed the upswing of concentration that would happen as a result of the transaction, through an analysis pertaining to sales and capacity based market share of the combined entity. As a result of its analysis, the Board resolved that the transaction would not result in significant impediment of effective competition and unconditionally approved the transaction.

III. Conclusion

To that end, the Board has rendered a significant decision which (i) could be defined as "once in a blue moon" since it has accepted the failing firm defence, (ii) elaborates "unity of interest" and sets forth that family ties are not sufficient to consider two undertakings as a single economic unit and (iii) concretises the conditions to accept the failing firm defence.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2020. A link to the full Legal Insight Quarterly may be found here


1. The Board's decision dated August 13, 2020 and numbered 20-37/525-233.

2. The Board's indication on this front is in line with its approach in its previous decisions; e.g. Traffic Signalization Decision dated 12.03.2020 and numbered 20-14/191-97; Mavi Giyim Decision dated 08.03.2018 and numbered 18-07/121-65; Altiparmak Gida Decision dated 31.03.2010 and numbered 10-27/393-146; Ajans Press/PR Net decision dated 21.10.2010 and numbered 10-66/1402-523; Gidasa decision dated 7.2.2008 and numbered 08-12/130-46.

3.Yildiz Entegre is a company controlled by Yildizlar.

4. The Board's Paraffin decision dated 28.10.2009 and numbered 09-49/1220-308.

5.The Board's Dogan/Bagimsiz/Kemer decision dated 10.3.2008 and numbered 08-23/237-75.

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