Law School on Mergers & AcquisitionsMergers & Acquisitions

Competition Law Aspects of M & A i iti i T kMergers & Acquisitions in Turkey

ByBahadır BALKI

For a global transaction

1. you have to keep your competition law sensor open, y p y p p ,

2. Right from the begining of M&A talks, you have to know that there is a control mechanism in Turkey.that there is a control mechanism in Turkey.

Why M&A Transactions are Subject to Control y jMechanism?

Restrictions Arising From Competition Rules

Agreements Restricting Ab f M&A TransactionsAgreements Restricting Competition

Abuse of Dominant Position

M&A Transactions Hindering Competition

ACTECON COMPETITION&REGULATION CONSULTANCY. ©

3

Types of Concentrations:

1. Based on Shareholding Structure• Mergers• Acquisitions• Joint‐Ventures

2. Based on Market Level• Horizontal• Horizontal• Vertical

C l l• Conglomeral

Based on Shareholding Status

Mergers Acquisitions  Joint‐Ventures

Based on Market Level

H i t lHorizontal

Vertical

Conglomerate

Competition Law in Turkey

• The Act: 1994

• Turkish Competition Authority: 1997

Merger Control Law in Turkey

• Article 7, 10 & 11 of the Act

C i é N 1997/1 th M d A i iti• Communiqué No. 1997/1 on the Mergers and Acquisitions

•Ongoing Reform talks…Ongoing Reform talks…

Merger Control in TurkeyMerger Control in Turkey

• Performance of the Turkish Competition Board

• (due to global crises)146 transaction in 2009

• Jurisdictional Issues

• Substantial Issues

• Procedural Issues

JURISDICTIONAL ISSUES

• Is this a CONCENTRATION?

M ? A i iti ? J i t V t ?• Merger? Acquisition? Joint‐Venture?

• Is there a CHANGE of CONTROL?

• Is the transaction above the THRESHOLDS?

• Aggregate turnover €12 m or 25% market share

• If “YES” to all; then you need a clearance…

• So go to the Turkish Competition Authority• So, go to the Turkish Competition Authority

ThresholdsThresholds

•Threshold levels depend on the policy of the Authority

• Very low in Turkey. So many transactions are caught.

• Reform? (Increase & “at least two of the parties ” criteria)• Reform? (Increase &  at least two of the parties…  criteria)

Draft Merger & Acquisition CommuniquéDraft Merger & Acquisition Communiqué

• the parties’ aggregate turnover exceeds 100 million TL

• turnover of each of at least two of them exceeds 20 million TL

SUBSTANTIVE ISSUES

• Define the relevant market…

• On geographical and product basis…

• Compare the competition environment in that• Compare the competition environment in that market before & after the transaction.

Th T l i i i• The Test to apply in assessing a concentration:

• Dominance Test (Turkey) /SLC Test (EU)

• Observe different conditions: Market share, concentration ratios, market entry, buyer y ypower, failing firm, efficiencies…

• See what other competition issues exist: ancillarySee what other competition issues exist: ancillary restrictions…

TURKEY

Mergers or Acquisitions

Article 7- Merger of two or more undertakings, aimed at creating a dominant position orstrengthening their dominant position, as a result of which, competition is significantly decreased inany market for goods or services within the whole or a part of the country, or acquisition, exceptacquisition by way of inheritance, by any undertaking or person, of another undertaking, either byacquisition of its assets or all or a part of its partnership shares, or of other means which conferit/him the power to hold a managerial right, is illegal and prohibited.

EU (Council Regulation 139/2004)

Article 2. 3. A concentration which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or 

h i f d i i i h ll b d l d i ibl i h h kstrengthening of a dominant position, shall be declared incompatible with the common market.

PROCEDURAL ISSUES• Phase I (Article 10): 15 Days (30 Days if no call… Implied Clearance)

• Phase II: May Last up to 6+6 months!

• Attach the necessary documents

• No filing fee• No filing fee

• Be prepared for additional questionsp p q

• Transaction may be cleared by commitments of the parties but not   b h d d b h dby the conditions imposed by the Board.

BREACHES SANCTIONS & OTHER ISSUESBREACHES, SANCTIONS & OTHER ISSUES

• Failure to notify (Article 11): may be fined up to %0.1 of   total turnovertotal turnover

IF the transaction poses competition problems:IF the transaction poses competition problems:

termination, de‐merger & fine up to 10 % of totaltermination, de merger & fine up to 10 % of total turnover

• Providing wrong or misguiding information: % 0.1

CASE – STUDY (Acquisition of Cadbury by KRAFT)

• The most expensive transaction of 2010 ($18.9 billion)

CASE  STUDY (Acquisition of Cadbury by KRAFT)

• The products of parties only overlaps in chocolate and the post-merger market share in this product could not affect the market structure. p

• Can an acquisition be made without mutually agreeing on the transaction?

No purchasing contract or any other written document demonstrating the mutual will of the parties

• Yes, it is called hostile takeover!

K ft ff d 500 h d 0 18 K ft h f h C db• Kraft offered 500 pence cash and 0,18 new Kraft shares for each Cadbury shares traded at the stock exchange.

• 90% Cadbury shareholders accepted the proposal of Kraft

CASE – STUDY (Acquisition of Cadbury by KRAFT)• But there is no any rule on the timing of notification for a hostile takeover in

Turkish Merger Control Regime.

• Remember the “Golden Rule”: Notification have to be made before closing, in other words before change of control.

• For this case, it means before acceptance of the proposal of Kraft byCadbury shareholders.y

• Remember the “Silver Rule”: the principles in secondary legislation of EC and case law of EC authorities shall be applied in Turkey.case law of EC authorities shall be applied in Turkey.

Article 4.1 of Council Regulation No 139/2004:

“Notification may also be made … in the case of a public bid, where they have publicly announced an intention to make such a bid, provided that the intendedagreement or bid would result in concentration ”agreement or bid would result in concentration…

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Att. Bahadır BALKI

Bahadir.balki@actecon.com