TYPES OF ECONOMIC CONCENTRATION IN COMPETITION LAW (MERGERS AND ACQUISITIONS)
Mergers and acquisitions between companies that produce goods or services in a market bring about benefits such as product quality and the development of new products. However, mergers and acquisitions can also be made for purposes that limit competition by creating a dominant position or strengthening the current dominant position. In the second case, the mergers and acquisitions in question are prohibited under Article 7 of Law No. 4054. In accordance with article7 , “It is a violation of law and is prohibited for one or more undertakings attaining a dominant position or an existing dominant position gaining power by mergers that will cause a decrease in competition in any goods or services market in the whole or a part of a country, an undertaking or an entity acquiring another undertaking’s assets as a whole or partly or their partnership shares or means that give them the authority to have rights on management with the exception of acquisition by inheritance.".
In the second paragraph, which is a continuation of the article, it is told that "the Board declares which types of mergers and acquisitions need a permission from the Board in order to gain legal validity with the communiqués they will issue". In order to gain legal validity, mergers and acquisitions that need permission from the Competition Board and the procedures and principles for notifying the Board are regulated by the “Communiqué on Mergers and Acquisitions that Need Permission from the Competition Board”. (Communiqué No. 2010/4)
The element of authority is examined by the Competition Board when determining whether a merger and acquisition is within the scope of Article 7 or not. The element of authority refers to the power to be able to exert a decisive influence on the behavior of an undertaking. If a merger or acquisition causes a change in the power of authority over an undertaking, it is considered within the scope of Article 7. In turn, the merger or acquisition of undertakings controlled by the same person or undertakings will not be considered within the scope of Article 7, since it will not cause a change in authority.
In terms of Communiqué No. 2010/4, authority may be exercised through separate or joint rights that can exert a decisive effect on an undertaking bodily or juridically, contracts or other means. These means are, in particular, the right to use property or operable right over all or part of the assets of an undertaking, rights or contracts that provide decisive influence on the formation or decisions of the bodies of an undertaking. Authority can be obtained by right-holders or persons or undertakings that have been authorized to exercise the rights by a contract, or that have the power to exercise these rights, even though they do not have such rights and powers.
A merger of two or more undertakings or the acquisition of one undertaking by another undertaking in such a way as to cause a permanent change in control is considered a merger or acquisition transaction within the scope of Article 7 of the Law on the Protection of Competititon (LOPC). Corporate revenue levels are foreseen in accordance with the relevant Communiqué in terms of mergers and acquisitions that fall within the scope of Article 7 of the Law and create a change in authority. The permission of the Competition Authority is required in order to provide legal validity for the merger and acquisition transactions carried out by undertakings whose total revenue in a market exceeds the specified level. With the exception of joint ventures, mergers and acquisitions which do not affect the market may become legally valid without the permission of the Competition Board.
In accordance with Article 7 of the Communiqué, if the merger and acquisition process exceeds;
a) A total amount of the Parties' Turkey revenue of a Hundred Million TL and an amount of at least two of the Parties' (separate) Turkey revenue of Thirty Million TL or,
b) A Turkey revenue of Thirty Million TL by the acquired asset or activity in acquisition processes or by at least one of the Parties in merger processes, or a worldwide revenue of Five Hundred Million TL by least one of the other Parties,
it is obligatory to obtain permission from the Board in order for the transaction to become legally valid.
The cases that are not considered as mergers and acquisitions within the scope of Article 7 of the Law and therefore are not subject to the permission of the Board are listed in Article 6 of the Communiqué as follows:
a) Intra-group transactions that do not lead to a change in control,
b) The undertakings whose ordinary activities are to operate with securities for themselves or for others temporarily possessing the securities they bought to re-sell and the voting right arising from these securities with the condition to not affect the competition policies of the undertaking that created those securities,
c) Obtaining control by a public institution and organization for the purpose of liquidation, execution, payment difficulties, suspension of payments, concordat, privatization or similar reasons and in accordance with the Law,
ç) Mergers and acquisitions taking place by inheritance.
1. Horizontal Mergers
If the undertakings are operated in the same sector and in the same area, their merger is a horizontal merger. Since such mergers involve the merger of companies who offer the same product/service in the same sector, it may lead to a decrease in the number of competing companies and therefore accelerate the process of monopolization in the market. For example, the merging of Tansaş and Migros, or of Türk Petrol and Shell, or of Yapı Kredi and Koçbank can be given as examples of horizontal mergers. Similarly, Facebook's acquisition of Instagram in 2012 can be cited as an example of a horizontal merger.
In a horizontal merger, the type of customer of the undertakings to be merged is the same. Through a merger, the undertakings in question increase the share of their companies in the market by bringing their customers together. Horizontal mergers are usually preferred by undertakings that have not yet established their customer profile. Companies that have already established their customer profile prefer horizontal mergers in order to increase their competitiveness and market value within the scope of their R&D activities.
2. Vertical Mergers
If there is a buyer-seller or company-supplier relationship between the to-be-merged undertakings, this will be called a vertical merger. In such mergers, the main purpose is to reduce the cost to eliminate disruptions that may occur during the production phase or because it is too costly to stock up. On the other hand, the merged undertakings are gaining a market power that will allow prices to be raised in a way that is against the consumer. In addition, the likelihood of anti-competitive behaviors arising from the sharing of competitors' important and confidential information by the merged undertakings increase.
In vertical mergers, undertakings that are located in the same market, but have customers in different sub-sectors merge. For example, a company that produces cars merging with a company that produces wheels is a vertical merger. In other words, vertical mergers are mergers between undertakings operating at different levels of the supply chain.
3. Mixed Mergers
Mergers of companies that do business in sectors or different markets that have nothing to do with each other or are unrelated to each other are called mixed mergers. Currently, most mergers are of a mixed merger nature. Undertakings from different countries merge in order to develop their product range. For example, P&G's incorporation of Gilette led to the development of their product range.
The concept of an acquisition is also essentially a merger. Mergers of companies are regulated in Articles 136-158 of the Turkish Commercial Code, and legally, a merger is possible in two ways; by acquisition and by forming a new establishment. In mergers by forming a new establishment, two or more undertakings come together to form a new undertaking. In mergers by acquisition, a company joins the structure of another company and all its assets are transferred to the acquiring company with its assets and liabilities. Competition Law, on the other hand, examines the effects of the acquisition on the market in question.
In accordance with Article 5 of Communiqué no. 2010/4, the creation of a joint venture that will permanently perform all the functions of an unaffiliated economic asset is an acquisition. One or more undertakings’ direct or indirect control being acquired as a whole or partly, by buying shares or assets, by contract or any other means, by one or more undertakings or an entity that is already in control of an at least one undertaking is an acquisition in accordance with LOPC Article 7.
In Competition Law, the concept of economic concentration occurs through mergers and acquisitions. If the merger or acquisition is made in order to increase the economic power of an undertaking that is a subject of the relevant transaction in the current market, the issue of whether competition is limited will be examined by the Competition Board. If such a merger or acquisition has a limiting effect on competition, this transaction will be prohibited by being deemed illegal in accordance with Article 7 of the LOPC. In order for some mergers and acquisitions to have legal consequences, notifying the Board is required. In accordance with Communiqué No. 2010/4, mergers and acquisitions subject to permission are regulated in Article 7 of the Communiqué. Mergers and acquisitions are not considered within the scope of Article 7 of the LOPC, and transactions that are not subject to permission are specified in Article 6 of the Communiqué. In this article, definitions of mergers and acquisitions are given within the framework of the Law on the Protection of Competition and Commun