Competition Board Approval for Mergers & Acquisitions

Competition Authority Approval for Mergers & Acquisitions – Lawyer in Izmir

Article 7 of the Law on the Protection of Competition No. 4054 dated 7/12/1994 stipulates that certain mergers and acquisitions must be notified to and authorized by the Competition Board in order to gain legal validity. This notification obligation is regulated in detail by Circular No. 2010/4.

The justification for this obligation is as follows: “Mergers and acquisitions are prohibited if they create a dominant position in the market in a way that significantly reduces competition, or if they further strengthen the dominant position of one or more undertakings in the market. The point to note here is that the growth of undertakings outside their own internal dynamics is being controlled. It is prohibited for undertakings to become dominant through mergers or acquisitions in a way that significantly reduces competition. This is because it is an accepted fact that becoming dominant through mergers or acquisitions causes more disruption to the competitive order than an undertaking becoming dominant through its own internal growth. The second paragraph of the article does not, as a rule, require permission from the Board for mergers and acquisitions to gain legal validity. In other words, mergers and acquisitions can be valid without permission from the Board. However, there will be exceptions to this rule. If a merger or acquisition falling within the scope of the first paragraph of the article is deemed invalid after it has gained legal validity on the grounds that it violates this law, it will cause a number of problems in practice. Therefore, which mergers and acquisitions are prohibited in the second paragraph?” The Board has been authorized to issue a circular stating that prior authorization is required for such mergers and acquisitions to be legally valid.

What are the circumstances considered a merger or acquisition?

The scope of the authorization obligation is defined as mergers and acquisitions that result in a permanent change in control; these limits have been clarified with the relevant communiqué. Within this framework, when examining the authorization or notification obligations of the relevant undertakings, those that result in a permanent change in control are considered.;

• The merger of two or more undertakings or
• The acquisition, direct or indirect, of control of all or part of one or more undertakings by one or more undertakings or by one or more persons already controlling at least one undertaking, through purchase of shares or assets, by contract or otherwise.,

It is stated that it is necessary.

What is Control from a Competition Law Perspective?

Control can be established, individually or collectively, through rights, contracts, or other means that enable the exercise of decisive influence over an undertaking, whether in practice or in law. These means include, in particular, ownership or a viable right to use all or part of an undertaking's assets, or rights or contracts that provide decisive influence over the composition or decisions of an undertaking's organs. Control may be acquired by rights holders or persons or undertakings authorized to exercise such rights under a contract, or who, although not authorized, actually possess the power to exercise such rights.

The creation of a joint venture that will permanently perform all the functions of an independent economic entity is also considered an acquisition under this obligation. In such transactions, each of the parties to the transaction is considered the acquirer.

What are the exceptions to the rules of merger or acquisition?

The transactions described below are outside the scope of the authorization requirement, and undertakings are not required to obtain authorization from the Competition Authority for such transactions.

• Intragroup transactions and other transactions that do not result in a change of control,
• Undertakings whose ordinary activities involve trading securities on their own behalf or on behalf of others may temporarily hold securities they have purchased for resale, provided that they do not use the voting rights arising from these securities in a way that would affect the competition policies of the undertaking that issued the securities.,
• Control is acquired by a public institution or organization for the purpose of liquidation, dissolution, insolvency, suspension of payments, concordat, privatization, or for similar reasons, and as required by law.,
• The transactions in question are carried out through inheritance.

When is Competition Board Approval Required for Mergers & Acquisitions?

Mergers and acquisitions that are subject to notification and authorization obligations under the relevant legislation are regulated by the relevant legislation;

• The total turnover of the transaction parties in Türkiye must be seven hundred and fifty million TL, and the turnover of at least two of the transaction parties in Türkiye must be two hundred and fifty million TL individually, or
• In acquisition transactions, the asset or business being transferred must have a turnover in Turkey of at least two hundred and fifty million TL, and in merger transactions, at least one of the transaction parties must have a global turnover of at least three billion TL.,

If it exceeds this limit, permission from the Board is required for the transaction to become legally valid.

Do technology companies need to obtain permission from the Competition Authority?

With the changes made in 2021, transactions related to the acquisition of technology startups operating in the Turkish geographical market, conducting R&D activities, or providing services to users in Türkiye are subject to the following:“Operating in the Turkish geographical market or R&D activity or Serving users in Türkiye In transactions relating to the acquisition of technology enterprises, the thresholds of two hundred and fifty million TL specified in paragraphs (a) and (b) of the first paragraph shall not be required..The following statements were included:.

In this context, the crossed-out conditions in the paragraph above will not be required for technology companies.

• The total turnover of the transaction parties in Türkiye is seven hundred and fifty million TL. and at least two of the transaction parties have separate turnovers in Türkiye of two hundred and fifty million TL or
• In acquisition transactions, the asset or business being transferred is the one being transferred, while in merger transactions, it is the other one being transferred. at least one of the transaction parties has a turnover of 250 million TL in Türkiye and At least one of the other transaction parties has a global turnover of three billion TL,

Therefore, in transactions relating to mergers or acquisitions of technology enterprises;

• The total turnover of the transaction parties in Türkiye must be 750,000,000 TL or
• At least one of the transaction parties has a global turnover of 3,000,000,000 TL.

If it exceeds this limit, the Board's permission will be required.

How is turnover calculated?

The total turnover of the following will be used as the basis:

• The relevant undertaking,
• The relevant undertaking, directly or indirectly;
  • or owns more than half of its capital or commercial assets
  • or having the right to exercise more than half of the voting rights
  • or has the authority to appoint more than half of the members of the supervisory board, the board of directors or the bodies authorized to represent the enterprise, or
  • individuals or economic entities that have the right to manage their affairs,

In calculating turnover, if the legal or non-legal entities of a transaction are transferred, only the turnover of the transferred portion shall be considered for the transferring party.

The turnover of joint ventures in which the relevant undertakings have the right to manage their business together with third parties is calculated by dividing it equally according to the number of these rights holders.

Within a three-year period, two or more transactions carried out between the same persons or parties, or by the same undertaking in the same relevant product market, within the meaning of the second paragraph of this article, shall be considered as a single transaction for the purposes of calculating turnover.

Mergers & Acquisitions of Technology Companies

Turnover is calculated based on net sales at the end of the fiscal year preceding the reporting date, or, if this is not possible, at the end of the fiscal year closest to the reporting date, according to the standardized chart of accounts. Turnover generated from sales between individuals or economic entities is not included in this calculation. The average exchange rate used in turnover calculations is the Turkish Central Bank's buying exchange rate for the fiscal year in which the turnover occurred.

How to Report Mergers and Acquisitions?

Notification shall be made jointly by the parties or by either party or their authorized representatives using the Notification Form prepared by the Competition Authority. Joint notifications shall be made using a single form. The form and accompanying documents shall also be prepared electronically and submitted in person or by mail. Alternatively, they are submitted to the Institution's headquarters in Ankara via e-Government. If there are copies among the documents, those making the notification must confirm that they are consistent with the originals.

The application must contain all requested information and documents completely and accurately. Any changes to this information before the Board makes a decision must be reported to the Board without delay. Those who make false or misleading statements in the Notification Form will be subject to administrative fines.

A merger or acquisition subject to authorization cannot become legally valid until the Competition Authority makes an explicit or implicit decision regarding the notification made about the merger or acquisition.

If mergers or acquisitions subject to application are carried out without the Board's permission, an administrative fine will be imposed. In mergers, the administrative fine is imposed on each party, and in acquisitions, it is imposed only on the acquiring party.

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