Merger Review of International Deals in Turkey
By Suleyman Cengiz
Posted: 5th December 2012 10:19
As emerging economies gain strength and stability, the markets in these countries become fertile soil for lucrative international investments. The very first approach to consider is to take over a local firm, most of the time one with which the acquirer has maintained a long-standing business relationship. The advantages are manifold, and, hence, difficult to expound on. Just to mention some advantages of a local take-over, the acquirer has a strong first step into a relatively unknown business environment, and comes by the accrued local market intelligence easily, and, thus, has the opportunity to internalise local business know-how. On the other hand, the target benefits from international goodwill, acquires most up-to-date know-how, and raises capital in cases of partnerships. As the adverse effects of the global crisis fades away, such investment opportunities are hard to overlook. But wait, not so fast!
The past decade will be remembered with many international developments under its wing with the global spread of competition laws. This brought some new terms with it into the M&A vernacular, such as the “Competition Authority Approval.”
Turkey is one of the early movers in passing competition laws, and establishing a competition authority. One of the main pillars of the Turkish Competition Law, which is far from suprising, is Merger Control.
The Merger Control Communique of the Turkish Competition Board, the main piece of legislation establishing the merger review procedure in Turkey, sets up a system of pre-notification. Accordingly, the deals in Turkey comprising a merger, an acquisition, or a joint venture are subject to the upfront approval of the Turkish Competition Board, if certain conditions are met. There is no need to delve in to the competition law definition of the mergers, acquisitions or joint ventures; the odds are that a merger transaction is subject to Turkish Competition Board scrutiny if the acquirer’s most recent global annual turnover exceeds USD 270 million, and the target achieves a humble USD 2.7million in Turkey. These are quite low levels of notification thresholds, especially taking into account that the firms in question are pursuing an international deal. The turnover of the acquirer for competition law purposes is the consolidated global income of the whole group to which the acquiring party belongs. In practice, this means that the international firms pursuing a merger or acquisition in Turkey must keep the Competition Board approval on their agenda, until having conferred with their local legal counsel.
The Turkish Competition Law is quite unyielding with respect to merger controls. An ommission of timely notification could trigger a penalty of 0.5 % of the turnover amount to each party, setting aside the inapplicability of the governing documents in Turkey.
When discussing international investments and merger controls, joint ventures deserve some emphasis. As a means of cost sharing, incentivising business partners and risk management, joint ventures are one of the most prefered ways through which to enter into new markets. They also attract the interest of the competition authorities more than other forms of the mergers and acquisitions, since certain constructions of joint ventures are considered to be a “handy means” through which to circumvent the ban on agreements that restrict the competition. In accordance with this reservation, to get caught by the notification thresholds is easier for joint ventures. In a joint venture, the turnover of the counterparty will be the consolidated group turnover, unlike in an acquisition, where only the turnover of the target is relevant. In other words, one may take over a firm without having to notify of the transaction; however, such notification may be inevitable if only half of the same target is taken over.
A further scenario of international mergers that needs mentioning are the global transactions that trigger a series of notifications, worldwide. This is the case where two global giants are merging, or one takes over the other. Occassionally, both of the firms have commercial activities in Turkey, and to realize that the competition authority will be in the loop is straight forward. Nevertheless, the legislation that is currently in force in Turkey sets forth that the market presence of just one of the parties in Turkey is enough to trigger a notification requirement. In cases of global acquisitions, it is the acquirers responsibility to make this evaluation, which means that the acquirer may be made subject to fines if a required merger notification has been ommitted.
Indeed, the merger control spectrum in Turkey has a wide scope, possibly overreaching its underlying aims. This system of merger control was accepted at the end of 2010, and this replaced the previous one from 1997, at the begining of 2011. Less than two years after the commencement of the new thresholds regime, in August 2012, the Competition Board issued a notice declaring its intention to raise the merger notification thresholds, and requested all interested parties to submit their opinions. The reasoning was said to increase the efficiency of the merger supervision process by decreasing the number of filings, and by increasing the ratio of the transactions in the total number of notifications that cause competitive concern. In other words, the thresholds system causes far more notifications to be made than initially intended, and is not as effective in sorting out the problematic transactions as the Competition Board would like -- a very welcome “new year’s resolution” of the Competition Board.
Despite the low levels of notification thresholds and wide scope of the merger definition, the Turkish merger control system can still be said to be friendly towards direct investments. No such transaction has been blocked by the Competititon Board thus far. The Competition Board traditionally prefers to cure the transactions by commitments of the transaction parties, which are structured in liason with the parties through negotiations.
Mr. Suleyman Cengiz is the in-house competition counsel of Herguner Bilgen Özeke Attorney Partnership. He joined the the firm in 2011 after working at the Turkish Competition Authority for 14 years (1997-2011) as a senior case handler. Mr. Cengiz is responsible for providing competitive assessment on and guidance for contracts designed under the roof of Herguner Bilgen Özeke; administering merger & acquisition notifications for approval and contract notifications for exemption to the Turkish Competition Authority; advising and assisting the clientele on competition law matters such as leniency applications and administration of the investigation processes.
Suleyman Cengiz can be contacted under the phone number +90 212 310 18 43 and via the e-mail firstname.lastname@example.org