The first Turkish Competition Board decision on the termination of a preliminary investigation with commitment was announced
The first Turkish Competition Board ("Board") decision on the termination of a preliminary investigation with commitments was announced on 1 November 2021. You may access the explanation text and the announcement on the Turkish Competition Authority's ("Authority") website here.
Background information
The Authority's Communiqué No. 2021/2 on Commitments for Preliminary Investigations and Investigations on Anti-competitive Agreements, Concerted Practices, Decisions and Abuse of Dominant Position ("Communiqué on Commitments") was published in the Official Gazette No. 31425 on 16 March 2021 and entered into force on the same day. The Communiqué on Commitments provides guidance for the submission of commitments by undertakings or associations of undertakings during preliminary and full-fledged investigations, implementation and observations of the commitments (you may also find our legal alert regarding the Communiqué on Commitments here).
The Board's assessment
Within the scope of the relevant decision, the Board determined that Türkiye Şişe ve Cam Fabrikaları A.Ş. ("Şişecam") was in a dominant position in the glass production market, while Şişecam's subsidiary Şişecam Çevre Sistemleri A.Ş. ("Çevre Sistemleri") held a dominant position in the market for furnace-ready cullet. During the preliminary investigation, the Board evaluated the allegations on price/margin squeeze. The Board concluded that Şişecam abused its buyer power, which it has due to its dominant position in the glass production market, by excluding its competitors in the upstream market where it operates through Çevre Sistemleri. The Board found that competitors that are the suppliers of furnace-ready cullet are prevented from making profits due to Çevre Sistemleri's aggressive pricing and certain exclusivity provisions regarding the supply of waste glass, thereby excluded from the market.
Commitments
In order to address the competitive concerns identified within the scope of the preliminary investigation, Şişecam and Çevre Sistemleri proposed the following commitments:
- Terminating all procurement of unprocessed flat glass used in furnace-ready cullet from any undertaking that is outside the scope of Şişecam's economic integration (from third parties operating domestically), for five years beginning from the service of the short decision,
- Terminating all procurement of unprocessed glass container products used in furnace-ready cullet from any undertaking that is outside the scope of Şişecam's economic integration (from third parties operating domestically), for two years beginning from the notification of the short decision and restricting dumping of waste glass containers (i) up to 10,000 ton for the first year, (ii) 20,000 ton for the second year and (iii) 40,000 ton for the third year,
- Terminating procurements of (i) flat waste glass (for five years) and (ii) waste glass container (for two years) from undertakings established abroad (from third parties operating abroad) and outside the scope of Şişecam's Economic Integration,
- The amount of furnace-ready glass procured from third parties shall not exceed 35% of the overall procured amount from third parties applicable for each financial year, lasting for five years from the notification of the short decision,
- A copy of notification made via notary public regarding the termination of supply of waste glass contracts entered into force between Şişecam Economic Integration and third party undertakings, to be submitted to the Authority, lasting for five years,
- A notification to be made to the Authority to observe the commitments that are being implemented with respect to transactions such as transfer, lease etc. over the main elements of recycling activities (i.e. facility, machinery-equipment), lasting for five years,
- Annual submission of independent audit reports to the Authority prepared with the purpose of fulfillment of the commitments, for five years.
Conclusion and the importance of the decision
During the preliminary investigation , Şişecam and Çevre Sistemleri submitted an application to initiate the commitment process regarding the competitive concerns stated within the scope of the file. The Board, with its decision dated 21 October 2021 and numbered 21-51/712-354, concluded that the comprehensive commitment package submitted was sufficient to eliminate the competition law concerns, and thus, terminated the preliminary investigation.
All in all, the relevant decision is an important step for the Authority and the parties in the use of a novel legal mechanism, and the relevant decision shows that both the Board and the investigated undertakings now have another tool to consider for rapidly eliminating the competition law concerns at the earlier stages of a competition investigation, without going through a long-standing full-fledge investigation process - as well as eliminating the potential fines they could face.
The Authority clears the acquisition of Eaton Corporation by Danfoss, subject to commitments approved by the European Commission
On 4 May 2021, the Board cleared the acquisition of the sole control of Eaton Corporation plc's ("Eaton Corporation") hydraulic business by Danfoss A/S ("Danfoss") through its decision number 21-25/313-144. Due to competitive concerns identified, the Board decided to take the transaction into in-depth review (i.e. Phase II review). The Board terminated the Phase II review and cleared the transaction after finding that the commitments submitted to and approved by the European Commission ("Commission") will remove the competitive concerns in Turkey.
The Commission's assessment
The Commission took the transaction into Phase II review on the grounds that it raises competitive concerns in the "power steering components," "electro hydraulic valves," and "orbit motors" markets. To address the Commission's concerns, Danfoss offered the following commitments:
- The divestment of parts of Danfoss' hydrostatic steering units ("HSU"), electrohydraulic steering valves ("ESV") and orbital motors businesses. These include Danfoss' plants in Wroclaw (Poland), Parchim (Germany) and Hopkinsville (US).
- The structural divestiture will be complemented by the transfer of Eaton Corporation's production lines for medium power orbital motors, its Series 10 production line for HSUs, and production assets for its ESV portfolio, to the Hopkinsville plant.
- To enhance the competitiveness of the divestment business, and in addition to structural divestitures, Danfoss also committed to transfer additional Danfoss and Eaton Corporation technology for HSUs.
The Commission found that the commitments offered by Danfoss fully address the competition concerns raised by the transaction. Therefore, the Commission concluded that the transaction, as modified by the commitments, would no longer raise competition concerns. The Commission has approved the offered commitments under the EU Merger Regulation and cleared the proposed acquisition on 18 March 2021.
The Board's assessment
In summary, the Board made the following evaluations regarding the relevant transaction:
- The relevant product markets were provided as the "automation and control systems market," "hydraulic mobile valves market," "hydraulic mobile pumps market," "power steering components for off-road vehicles market," "orbit motors market," and the "non-orbit motor hydraulic motors market" by the Board. The relevant geographical market was determined as "Turkey."
- Following its investigation, the Board had concerns that the transaction could harm competition due to the combination of both companies' shares, especially in the power steering units for off-road vehicles market. The Board evaluated: (i) the disproportionate market share of the competitors compared to the parties' market shares; (ii) the concentrated nature of the relevant market; (iii) the presence of buyer power in the relevant market; and (iv) the positions of the parties in the global market.
- Within the scope of the Board's detailed analysis, Danfoss' global position was found to increase the competitive concerns, since the relevant transaction would eliminate a significant competitive constraint in the global arena. Furthermore, the Board considered the transaction's restrictive effects on competition in the global market and its prospective negative reflections in the Turkish market.
Conclusion
The Board approved the transaction based on the commitments submitted by Danfoss to the Commission during the Phase II review. The Board considered that the commitments submitted to the Commission would eliminate overlaps in Turkey. Accordingly, the Board concluded that the transaction would not result in significant impediment of competition, and thus, should be authorized within the framework of the commitments submitted to and accepted by the Commission.
All in all, given the global nature of the competition and the competitive concerns, the commitments provided before the Commission to address global competitive concerns also eliminated competition concerns at a local level. Given the above, the decision constitutes one of the various examples where globally effective commitments provided before other competition authorities were sufficient for a clearance in Turkey and no additional Turkey-specific commitments were needed.1
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Footnote
1. Please see, e.g. Agilent/Varian, 18 February 2010, 10-18/212-82; Cookson/Foseco, 20 March 2008, 08-25/254-83; Valeo/FTE, 26 October 2017, 17-35/560-244; and Bayer/Monsanto, 8 March 2018, 18-14/261-126.
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