Merger Control in Türkiye – 4/6: Possible consequences of failure to notify and/or realizing a transaction in the absence of an approval decision

Merger Control in Türkiye – 4: Possible consequences of failure to notify and/or realizing a transaction in the absence of an approval decision

For merger or acquisition transactions that are subject to the authorisation of the Turkish Competition Board (the “TCB” or the “Board”) as per the Law No. 4054 on the Protection of Competition (the “Law No. 4054“)[2] and the Turkish Competition Authority’s (the “TCA” or the “Authority”) Communiqué No. 2010/4 on Mergers and Acquisitions Calling for the Authorization of the Competition Board (the “Communiqué No. 2010/4”)[3], an application (i.e. notification) for authorisation/approval must be filed to the Board and the transaction in question must be realised (closed) only after the Board’s approval decision is obtained. This is because, the Turkish merger control regime adopts ex ante mandatory notification regime together with an obligation not to implement a transaction until the Board has cleared the transaction (standstill obligation).

In this framework, the Law No. 4054 imposes a positive obligation on the parties to the transaction to apply to the Board for authorisation, i.e. a notification obligation. The legal problems that may arise in the event of a breach of the notification obligation or realizing a merger or acquisition transaction without the approval of the Board (gun-jumping[4] with the term generally accepted worldwide) are briefly as follows: 

1. Legal invalidity of the transaction

Pursuant to Article 7/2 (“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 for them to become legally valid.”) and 10/2 (“merger or acquisition agreements shall take effect and become legally valid”) of the Law No. 4054, transactions subject to the mandatory authorisation of the Board shall only become legally valid if the Board decides to authorise them. In other words, if such a transaction is realized without the authorisation of the Board, it will be invalid under the Turkish law with all its consequences.

2. Administrative fine for breach of the notification obligation or realisation of the transaction without the approval of the Board

Pursuant to Article 16/1/b of the Law No. 4054, in the event that mergers and acquisitions subject to authorisation are realized without the Board’s authorisation, the undertakings concerned shall be imposed an administrative fine at the rate of  0.1% (one thousandth) of their annual gross revenues (turnover) at the end of the fiscal year preceding the decision, or if it is not possible to calculate this rate, at the end of the fiscal year closest to the date of the decision, as determined by the Board. The fine will be imposed on each of the parties in merger transactions and only on the acquirer in acquisition transactions.

This fine will be imposed solely for the breach of the notification obligation and/or the realization of the transaction without the authorisation of the Board, regardless of the analysis of the significant impediment of effective competition to be made by the Board regarding the merits of the transaction.

In the recent Elon R. Musk/Twitter (23-12/197-66; 02.03.2023)[5] case, the Board initiated an ex officio examination upon the unofficial announcements made on 14.04.2022 regarding Musk’s acquisition of Twitter Inc. and determined that the said acquisition transaction was subject to the Board’s mandatory authorisation, but it was understood that no notification for authorisation was made to the Board by the relevant parties. Upon the initiation of a case by the Board on the subject, the parties were invited by the Board to apply for notification and a defence was requested from the parties. Ultimately the Board decided that:

(i) the transaction in question is subject to the mandatory authorisation of the Board,

(ii) the transaction will not result in a significant impediment of effective competition, in particular through the creation of a dominant position or the strengthening of an existing dominant position within the framework of Article 7 of the Law No. 4054, and therefore the transaction may be authorised,

(iii) since the authorised acquisition transaction was carried out without the authorisation of the Board, it was decided to impose an administrative fine on Musk at the rate of one thousandth of his turnover generated in Türkiye for the year 2022.

3. Administrative fine for the realization of a transaction that would significantly impede effective competition without the authorisation of the Board

Pursuant to Article 7 of the Law No. 4054, “It is illegal and prohibited for one or more undertakings to merge, or for an undertaking or a person to acquire – except by inheritance – assets, or all or part of the partnership shares, or instruments conferring executive rights over another undertaking, where these 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, particularly in the form of creating or strengthening a dominant position.”

Pursuant to Article 16/2 of the Law No. 4054, in the event that a transaction that is subject to the Board’s mandatory authorisation and at would also cause a significant impediment of effective competition is realized without the Board’s authorisation, an administrative fine shall be imposed up on the undertakings concerned up to  10% (ten per cent) of the annual gross revenues generated at the end of the previous financial year or, if it is not possible to calculate this, at the end of the financial year closest to the date of the final decision, as determined by the Board.

This administrative fine will be imposed in addition to the administrative fine to be imposed for the violation of the notification obligation as explained above.

4. The decisions that the Board may take within the framework of terminating the infringement in case a transaction that would significantly impede effective competition is realized without the authorisation of the Board

Pursuant to Article 9 of the Law No. 4054, if the Board determines that there has been a violation of Article 7, i.e. realization of a transaction that would significantly impede effective competition, it may impose structural or behavioural obligations on the undertakings concerned to terminate the infringement (restoration of competition). These measures include the transfer of their shareholding interests or assets. In other words, the Board may legally decide to effectively cancel a transaction carried out without its authorisation. Furthermore, the Board may resort to interim measures in cases of serious and irreparable damages that may arise during its investigation.

[1] You can find the first three articles of the information notes series below:

‘Merger Control in Türkiye – 1/6: Merger Control in Türkiye – 1: What is the applicable legislation and who is the enforcer?’

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

‘Merger Control in Türkiye – 3/6: Public announcements throughout the notification process’

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

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

[4] Gun-jumping refers to any behaviour that infringes these closely related obligations by implementing the transaction either before its notification or its approval. For details, click here.

[5] For the relevant announcement, see  https://www.rekabet.gov.tr/en/Guncel/the-examination-about-the-acquisition-of-d384a31c4ebfed118eb0005056850339. For similar cases, see the Board’s decisions dated 06.12.2016 and numbered 16-42/693-311; dated 23.02.2012 and numbered 12-08/224-55; dated 20.12.2006 and numbered 06-92/1186-355; dated 01.02.2007 and numbered 07-11/71-23.