In the last five years, we have seen the impact of the global financial crisis in many different sectors. The markets have started to move again with mergers of small and medium sized enterprises and the acquisition by large cash rich companies of smaller or same scale businesses.
In this context, the recent developments in the Turkish merger control regime gives some opportunities to market players but still does not afford full comfort to multinational companies acquiring companies in Turkey.
The Turkish Competition Authority (TCA) issued a Communiqué 2012/3 amending the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board 2010/4 which came into force on 1st February 2013.
This produced two important changes to Article 7 (Mergers or Acquisitions Subject to Authorization) relating tonotification thresholds and the affected market exception.
Background of the Amendments
Article 7/3 of the Communiqué 2010/4 authorizes the Turkish Competition Board to revise the thresholds listed in the same article every two years. However, Communiqué 2010/4 was in force for two years and there have been some implementation problems.
The TCA issued amendments with their Communiqué 2012/3 after consulting with practitioners and other stakeholders in the market through a "Discussion Paper", and reviewing criticism of the implementation of the Communiqué 2010/4.
Amendment Regarding the Notification Thresholds
The first amendment relates to the notification thresholds. According to the former version of Article 7, a transaction had to be notified to the TCA if:
Total turnover of the transaction parties in Turkey exceeded TL100m ($50m), and turnover of at least two of the transaction parties in Turkey each exceeded TL30m ($15m), or
Global turnover of one of the transaction parties exceeded TL500m ($250m), and at least one of the remaining transaction parties had a turnover in Turkey exceeding TL5m.
The thresholds had always been criticised because the domestic threshold was very low. Therefore, if the notifying parties were global or multinational players entering the Turkish market, it would almost certainly trigger the notification requirement.
On the other hand, the number of the notifications, and the workload of the TCA, has increased in the last two years due to such low threshold.
In fact, the Discussion Paper states that the number of M&A decisions by the TCA was 210 in 2010 but increased to 238 in 2011 after Communiqué 2010/4 entered into force.
As a result, the TCA kept the global turnover threshold the same, but revised the threshold in the section (b) of Article 7 to "TL30m ($15m)", instead of TL5m.
It is also worth noting that the TCA made another amendment to the Article 7/1(b). The domestic turnover which will be taken into consideration while determining whether a transaction triggers the notification requirement is "the turnover in Turkey for the acquired asset or operation in acquisition transactions, or turnover of at least one of the transaction parties in merger transactions in Turkey."
In other words, if the transaction in question is an acquisition transaction, the turnover of the target asset will be taken into consideration. However, if the transaction is a merger, the turnover of the parties in Turkey has to be taken into consideration.
To sum up the position as of 1st February 2013, concentrations are subject to TCA clearance when:
(i) the aggregate turnover in Turkey of the parties to the transaction exceeds TL100m (USD50m) and the Turkish turnover of each of at least two of the parties to the transaction exceeds TL30m ($15m); or (ii) the Turkish turnover of one of the parties in a merger, and the Turkish turnover of the acquired assets or business in an acquisition, exceeds TL30m ($15m) and the worldwide turnover of at least one of the other parties exceeds TL500m ($250m)
Following the amendments it is expected that the new higher thresholds will decrease the number of notifications and thus the TCA's workload.
Furthermore, these new thresholds are also good news for businesses, especially for multinational companies, since it will be less likely that a transaction would trigger the notification requirement, saving time and money.
Amendment Regarding the "Affected Market" Exception
Communiqué 2010/4 also introduced the concept of an "affected market" and an exception to it.
When there is no "affected market" as a result of a transaction, there will be no requirement for a notification of a concentration, with the exception of joint ventures, even if the transaction exceeds the turnover thresholds.
The main aim of introducing this new concept was to provide clarity in the Turkish merger control regime and to prevent a transaction without any effect on the Turkish market, from being notified to the TCA.
However, the application of this provision on affected markets in practice led to a number of controversies and was heavily criticized for introducing another type of market evaluation requirement in determining if a transaction was subject to the notification requirement.
As the definition of the affected market was not clear for the notifying parties, they had difficulty in making self assessments and deciding whether their transaction needed to be notified.
Many of them chose to notify their transaction "to be on the safe side" and avoid any penalty for failure to notify.
Eventually, this new concept failed to bring legal certainty and failed to avoid unnecessary costs and workload.
Having observed this chaotic situation, the TCA decided to abandon the affected market exception. After this amendment, parties with turnovers exceeding the revised thresholds have to notify their transaction to the TCA even if there is not an affected market. This amendment is designed to have an impact on notifiability analyses.
In other words, the concept of affected markets will now be considered in the substantive evaluation only.
Although this amendment removes the uncertainties about the affected market, it is bound to cause controversy particularly for the notifiability analyses of foreign-to-foreign transactions which do not have any effect on the Turkish market, but exceed the thresholds. This will place a new burden on multinational companies to notify almost every transaction if the notification thresholds are exceeded.
The TCA is often criticized for being out of touch with economic realities by covering transactions which may not be of economic significance. Therefore, the revision of the thresholds was welcomed by the legal and business community. On the other hand, the newly introduced affected market exception has gone with the wind. The results of this abandonment are yet to be seen.
Özge Atılgan Karakulak is a partner and member of the competition team at Turkey's largest law firm Mehmet Gun & Partners