Merger Control in Türkiye – 2/6: Which transactions are subject to mandatory merger control filing in Türkiye?

Merger Control in Türkiye – 2: Which transactions are subject to mandatory merger control filing in Türkiye?

Regardless of whether the transaction will have an actual impact on Turkish markets or whether there are any affected markets in Türkiye, Türkiye is a jurisdiction (along with some other countries such as the Russian Federation or the People’s Republic of China) where the parties of a merger or acquisition transaction are under the obligation to notify the transaction if (i) there is a permanent change of control and (ii) the turnover thresholds are triggered.

Indeed, one of the most frequently notified[1] type of transactions to the Turkish Competition Authority (the “TCA” or the “Authority”) are foreign to foreign joint venture transactions which will be realized abroad, and which will have no direct impact on Turkish markets. Such transactions must be notified to the TCA due to the turnover centred notifiability standard of the Turkish merger control regime which is explained below.

Notifiability analysis under Turkish merger control regime

As addressed in the first issue[2] of this series of articles, Article 7 of the Law No. 4054 on the Protection of Competition (the “Law No. 4054”)[3] provides that merger or acquisition transactions which would result in a significant lessening of effective competition within a market for goods or services in the entirety or a portion of the country are prohibited. To that end, the parties of merger and acquisitions transactions are obliged to obtain an approval from the Turkish Competition Board (the “TCB” or the “Board”) before closing the transaction.

The TCA’s Communiqué No. 2010/4 on the Mergers and Acquisitions Calling for the Authorization of the Competition Board (“Communiqué No. 2010/4“)[4] stipulates how it will be determined whether a transaction subject to mandatory notification in Türkiye.

Article 5(1) of the Communiqué No. 2010/4 entitled “Cases Considered as a Merger or an Acquisition” sets forth that a merger or acquisition transaction which will result in a permanent change in control will be within the scope of mandatory notification (provided that turnover thresholds are triggered)[5] Indeed, the TCA’s Guidelines on Cases Considered As a Merger or an Acquisition and the Concept of Control (“Control Guidelines”)[6] sets forth that: “the main factor in accepting a case as a merger or an acquisition is the lasting change in the control of the undertaking. Intra-group transactions and other transactions which do not lead to a change in control such as transfer of securities granting minority rights are not considered as mergers or acquisitions specified in article 5 of the Communiqué.”

Article 5(2) explains that control may be acquired through rights, contracts or other instruments which, separately or together, allow de facto or de jure exercise of decisive influence over an undertaking. Control Guidelines addresses the means of control (i.e. control by the acquisition of shares or assets, control through a contract and other means of control). In the same Guidelines, the concept of control is explained in detail by tackling de jure sole control, de facto sole control, joint control and veto rights that confer control. According to the Guidelines, some of the important veto rights which confer control are: appointment of senior management and determination of budget, business plan, investments, market-specific rights. In this regard, it can be said that the concept of control under Turkish merger control regime is very similar to EU merger control regime.

Article 5(3) provides that full-function joint ventures will be considered as ‘acquisitions’ within the scope Article 5(1). Full-functionality in Turkish merger control regime is tested based on the same four criteria applicable under EU competition law:

• sufficient resources to operate independently,
• making activities beyond one specific function for the parents,
• independence from the parent companies in sale and purchase activities,
• operation on a lasting basis.

Turnover thresholds:

Turnover thresholds are stipulated under Article 7 of the Communiqué No. 2010/4.[7] Accordingly, a transaction that will result in a change of control on a lasting basis will be subject to mandatory notification in Turkish law if either one of the turnover thresholds stipulated under Article 7(1)(a) or 7(1)(b) of the Communiqué No. 2010/4:

• Article 7(1)(a): the Turkish turnover of at least two of the transaction parties each exceeds TRY 250 million (approx. EUR 9.7 million or USD 10.5 million)[8] and the aggregate (total) Turkish turnover of the parties exceeds TRY 750 million (approx. EUR 29.2 million or USD 31.6 million),

or

• Article 7(1)(b): the Turkish turnover of the asset or activity subject to acquisition (target) in acquisitions or at least one of the transaction parties in mergers exceedsTRY 250 million (approx. EUR 9.7 million or USD 10.5 million) and worldwide turnover of one of the other transaction parties exceeds TRY 3 billion (approx. EUR 116.8 million or USD 126.4 million).[9]

In 2022, a significant amendment has been made on Communiqué No. 2010/4 with a view to prevent killer acquisitions in technological sectors and Article 7(2) now provides an exception for transactions involving technology undertakings[10] . Accordingly, in transactions involving the acquisition of technology companies which operate in the Turkish geographical market or have R&D activities in Türkiye or which provide services to users in Türkiye, the thresholds of TRY 250 million stipulated in Article 7(1) shall not apply. The main aim of this provision is to catch acquisition by tech giants of technology start-ups active in digital platforms, software and gaming software, financial technologies, biotechnology, pharmacology, agricultural chemicals and healthcare technologies.

[1] According to the TCA’s 2023 Merger Control Overview Report, among the 217 transactions that were notified to the TCA in 2023, 113 of them were foreign-to-foreign transactions. For the Turkish translation of the full report click here.

[2] Please see: ‘Merger Control in Türkiye – 1: What is the applicable legislation and who is the enforcer?’

[3] For the English translation of the full text of the Law No. 4054 is provided at the TCA’s website click here.

[4] Click here for detailed information about Communiqué No. 2010/4.

[5] The full text of Article 5 is as follows:

Cases Considered as a Merger or an Acquisition

(1) Under Article 7 of the Act,

(a) The merger of two or more undertakings, or

(b) The acquisition of direct or indirect control over all or part of one or more undertakings by one or more undertakings or by one or more persons who currently control at least one undertaking, through the purchase of shares or assets, through a contract or through any other means,

shall be considered a merger or acquisition transaction, provided there is a permanent change in control.

(2) For the purposes of this Communiqué, control may be acquired through rights, contracts or other instruments which, separately or together, allow de facto or de jure exercise of decisive influence over an undertaking. In particular, these instruments consist of ownership right or operating right over all or part of the assets of an undertaking, and those rights or contracts granting decisive influence over the structure or decisions of the bodies of an undertaking. Control may be acquired by right holders, or by those persons or undertakings who have been empowered to exercise such rights in accordance with a contract, or who, while lacking such rights and powers, have de facto strength to exercise such rights.

(3) Formation of a joint venture which would permanently fulfil all of the functions of an independent economic entity shall constitute an acquisition transaction under sub-paragraph (b) of paragraph 1 of this Article. In such transactions, each transaction party is considered to be the acquiring party.

(4) Closely related transactions which are tied to conditions or which are realized rapidly through securities within a short period of time shall be considered as single transactions under the scope of this Article.”

[6] Click here for detailed information on the TCA’s Guidelines on Cases Considered As a Merger or an Acquisition and the Concept of Control.

[7] The full text of Article 7 is as follows:

“(1) In a merger or acquisition transaction as specified under Article 5 of this Communiqué, authorization of the Board shall be required for the relevant transaction to carry legal validity in case,

(a) Total turnovers of the transaction parties in Türkiye exceed seven hundred and fifty hundred million TL, and turnovers of at least two of the transaction parties in Türkiye each exceed two hundred and fifty million TL, or

(b) The asset or activity subject to acquisition in acquisition transactions, and at least one of the parties of the transaction in merger transactions have a turnover in Türkiye exceeding two hundred and fifty million TL and the other party of the transactions has a global turnover exceeding three billion TL.

(2) In transactions involving the acquisition of technology companies which operate in the Turkish geographical market or have R&D activities in Türkiye or which provide services to users in Türkiye, the thresholds specified in paragraph 1, sub-paragraphs (a) and (b) at two hundred and fifty million TL shall not apply.”

[8] The conversion rates used in TRY to EUR and TRY to USD are the 2023 average buying exchange rates of Turkish Central Bank.

[9] The turnovers to be taken into consideration are annual revenues of the relevant undertaking in the year preceding the notification. For instance, if the notification to the TCA will be made on 2024, the 2023 annual turnovers of relevant undertakings will be relevant.

[10] Technology undertakings are defined as follows under Article 4 of the Communiqué No. 2010/4: “Undertakings operating in the field of digital platforms, software and gaming software, financial technologies, biotechnology, pharmacology, agricultural chemicals and healthcare technologies or the assets thereof.”