Negotiated M&A Transactions in The Eu And Turkish Competition Law

July 2009

Negotiated M&A transactions are a system in which undertakings, in order to make the operation of concentration in which they are parties compatible with competition regulations, may modify it by submitting “commitments” commonly referred to under the name of “remedies”. This system has started to be applied by the Commission in the EU and the Competition Board (“CB”) in Turkey, and is becoming widespread.

Legal Basis

EU competition law.The Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 numbered 2008/C- 267/01 and dated 22 October 2008 (“Notice”) regulates in detail the characteristics of the commitments which may be submitted by undertakings in order to have their operation of concentration, which will be normally not authorized, cleared by the Commission.

Turkish competition lawThe only provision which makes reference to the conditional approval of an operation of concentration is Article 6(3) of Communiqué No. 1997/1 on the Mergers and Acquisitions Calling for the Authorization of the Competition Board enacted on the basis of Article 7 of the Act on the Protection of Competition No. 4054 (“Act”) . However, even if the negotiated M&A transactions have been included in the Draft Law Amending the Act on the Protection of Competition within the European Union harmonization process with a view to fill the legal gap related to negotiated operations, there is not yet any regulation related to the commitments which may be submitted by the parties or to the different kinds of these commitments.

EU Practice

Basic conditions for acceptable commitmentsCommitments may be submitted by the undertakings’ parties to the operation of concentration both before (fix-it-first) and after the analysis of the Commission. The commitments have to eliminate the competition concerns entirely and have to be comprehensive and effective from all points of view. The commitments must be capable of being implemented effectively within a short period of time as the conditions of competition on the market will not be maintained until the commitments have been fulfilled. The commitments also have to be effectively monitored.

Different kinds of remediesStructural and behavioral remedies. The Notice, instead of giving a definition of structural remedies, preferred to give examples to explain them. The divestiture of a business to a suitable purchaser is considered to be a structural remedy. Remedies including promises by the parties to abstain from certain commercial behavior are considered to be behavioral remedies .

Removal of links with competitors. This remedy is especially provided for the problems which can arise from the links with competitors in consequence of the operation of concentration.

Other remedies. This category has been set forth in order to embody all kinds of remedies and includes remedies such as access remedies and change of long-term exclusive contracts.

Requirements for implementation of commitments

• The divestiture has to be completed within a maximum period of twelve months divided in two phases: the entering into a final agreement (1) and the closing (2).
• The divestiture operation shall be approved the Commission.
• The parties have to give information upon request for ten years following the adoption of the decision.
• Both a monitoring and a divestiture trustee shall be appointed during the interim period. The monitoring trustee oversees the parties’ compliance with the commitments. The divestiture trustee ensures that the commitments submitted by the parties are effective.
• The Commission may also require the establishment of a fast-track arbitration procedure in order to provide for a dispute resolution mechanism and to render the commitments enforceable by the market participants themselves.

Turkish Practice

“De facto” practiceAlthough there is no legislation on negotiated M&A transactions in Turkey for now, the Competition Board (“CB”) has endorsed remedies in its decisions since 1998 .

Parallelism with EU practice

Concerning remedies.The CB generally accepts structural remedies instead of behavioral remedies. For instance, the CB authorized an operation of concentration related to the sunflower seed market on the condition that all the sunflower seed activity of the European Business be divested to a third person . In another decision, a commitment related to feed enzyme has been foreseen without realizing a limitation of region . There are also decisions in which the CB decided on the divestiture of the brand licensing . In addition to these, commitments such as stabilization of the flight number and limitation of supply in the market have also been decided by the CB .

Concerning implementation of commitments. The CB adopted the principles set up by the Commission. The CB attracts attention to the following situations concerning the application of remedies:
• Approval of the divestiture agreement by CB in the case it does not exceed the authorization threshold;
• Appointment of a trustee for the operation subject to the divestiture ,
• Determination of the required characteristics of the purchaser ,
• Determination of requirements related to the divestiture process , etc.

Problematical decisions arising from the deficiency of regulation

Decisions not including any commitment . This concerns authorization applications in which parties did not mention any commitment. In such cases, the problem of applicability of commitments set forth by the CB appears. This situation is criticized in the doctrine because of the high possibility of violation of the principle of proportionality which needs to be respected during the application of the commitments. As a matter of fact, the CB may not choose the most “appropriate measures” according to the principle of proportionality.

Decisions including commitments submitted to the Commission . As to operations of concentrations that include international undertakings, it may be necessary to ask for a decision of the CB in order to determine the effects of an operation of concentration conditionally authorized by the Commission within the borders of the Republic of Turkey. In such situations, the CB generally follows the decision of the Commission which may cause a problem of superficiality. It becomes impossible to appoint a trustee to guarantee the effectiveness and the applicability of the commitments because no analysis is realized by the CB concerning the suitability of the purchaser or the market.

Conclusion

Negotiated M&A transactions, by permitting operations of concentration under certain conditions instead of prohibiting them, strengthens the economy. But to ensure this, they must be well defined. This is why a Notice giving all necessary details concerning the applicability of commitments, as in European Union competition law, shall also be adopted in Turkish competition law.

1 Articles 6(2) and 8(2) of the Council Regulation state that the Commission may decide to declare a concentration compatible with the common market following modification by the parties, both before and after the initiation of proceedings. Official Journal of European Union, 29.01.2004, L24/1
2 Official Journal of European Union, 22.10.2008, 2008/C 267/01
3 Article 6(3) is as follows: “The Board may authorize a merger or an acquisition notified on condition that other measures deemed appropriate by it are taken, and certain obligations are complied with”. Official Journal, 12.08.1997, 23078
4 Article 7(2) is as follows: “The Board shall declare, via communiqués to be issued by it, the types of mergers and acquisitions which have to be notified to the Board and for which permission has to be obtained, in order them to become legally valid”. Official Journal, 13.12.1994, 22140
5 The Draft Law has been submitted to the Presidency of the Turkish Grand National Assembly on 23/06/2008.
6 Behavioral remedies are exceptionally accepted on condition that their implementation and monitoring are fully ensured.
Some examples of Decisions: POAŞ Decision, 18.02.1999, 99-8/66-22; Lufthansa/Güneş Express Havacılık Decision, 11.04.2007, 07-31/323-119 and Doğan Gazetecilik/Vatan Gazetesi Decision, 10.03.2008, 08-23/237-75.
7 Syngenta Crop Protection AG – Astrazeneca Holdings B.V. – Koninklijke Venderhave Groep B.V. Decision, 29.07.2004, 04-49/673-171
8 DSM N.V. – Roche Holding AG Decision, 11.09.2003, 03-60/730-342
9 Greencastle/Integrum Decision, 23.08.2007, 07-67/836-314
10 Deutsche Lufthansa AG – Condor Flugdienst GmbH Decision, 11.04.2007, 07-31/323-119
11 Marmara Gıda/GıdaSa Decision, 21.10.2005, 05-71/981-270
12 Greencastle/Integrum Kararı, 23.08.2007, 07-67/836-314
13 Some examples of Decisions: Metro/Migros Decision, 19.3.1998, 57-424/52; POAŞ Decision, 18.02.1999, 99-8/66-22; Glaxo Wellcome/SmithKline Decision, 03.08.2000, 00-29/307-174; TÜPRAŞ Decision, 21.10.2005, 05-71/981-270; Lufthansa/Güneş Express Havacılık Decision, 11.04.2007, 07-31/323-119 and Doğan Gazetecilik/Vatan Gazetesi Decision, 10.03.2008, 08-23/237-75.
14 SENYÜCEL, Orçun, AT Komisyonu’nun Yoğunlaşmalarla İlgili Yeni Tedbir Duyurusu Işığında Türkiye Açısından Çıkarımlar, p. 16-17.
15 Some examples of Decisions: DSM/Roche Decision, 11.09.2003, 03-60/730-342; Sygenta/Advanta Decision, 29.07.2004, 04-49/673-171; P&G/Gillette Decision, 08.09.2005, 05-55/836-228 and Cookson/Foseco Decision, 20.03.2008, 08-25/254-83.