Gun Jumping in Turkish Competition Law
Introduction
In Turkish competition law, certain types of mergers and acquisitions are subject to Turkish Competition Board’s (“Board”) approval in order to gain legal validity. Pursuant to Article 7 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”), the Board is competent to define mergers and acquisitions which require approval. Article 7 of the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board (“Communiqué No. 2010/4”) sets forth the general framework on this front. According to the relevant article, mergers and acquisitions that lead into a permanent change in control and where the turnover of the transaction parties exceed certain thresholds are subject to the Board’s approval. Although subject to the Board’s approval, mergers and acquisitions that are not notified and carried out without approval may bring out various consequences.
By means of the Board’s recent decision concerning the imposition of an administrative fine on Elon Musk[1], transactions carried out without approval have become once again a hot topic in competition law. In this article, the legal framework for transactions realized without the Board’s prior approval, so-called “gun jumping” is discussed alongside with the Board’s approach to the subject.
Sanctions Applied to Unauthorized Mergers and Acquisitions
In case of gun jumping, Article 11 of the Law No. 4054 is applied. When a merger or acquisition which requires the Board’s approval is not notified, the Board initiates an examination on its own initiative, when it becomes aware of the transaction in any way. The Board may generally become aware of the transaction upon complaints or during the examination of other transactions notified to the Board.
Firstly, the Board evaluates whether the transaction falls within the scope of Article 7 of the Law No 4054. In other words, the Board examines whether the transaction significantly lessens effective competition. Therefore, the Board approves the merger or acquisition in case it opines that the transaction does not contain any competitive concern, meaning that the Board would have approved the transaction in the first place if it had been notified. However, the Board imposes an administrative fine due to failure to notify.
The administrative fine to be imposed on undertakings concerned as a result of failure to notify is calculated in accordance with Article 16(1)(b) of the Law No. 4054. Therefore, an administrative fine is imposed at the rate of one thousandth of the undertaking’s annual gross revenue generated at the end of the financial year preceding the date of the decision. If the sum calculated is found to be below the minimum administrative fine amount determined for the relevant year, then the minimum administrative fine amount is taken as a basis. [2] It is noteworthy that the undertaking subject to the administrative fine will be all transaction parties in merger transactions and the acquirer party in acquisitions and the establishment of joint ventures.
In case the transaction falls within the scope of Article 7 of the Law No. 4054 and results in the significant lessening of effective competition, another consequence for gun jumping takes place, which is the abolition of the transaction, together with all its legal consequences, until the Board’s approval. Pursuant to Article 10 of the Communiqué No. 2010/4, a merger or acquisition subject to approval cannot gain legal validity before a decision is taken expressly or implicitly. In this respect, pursuant to Article 11 of the Law No. 4054, the Board may decide to (i) terminate the transaction, (ii) remove all de facto legal consequences of every action that has been taken unlawfully, (iii) return all shares and assets, if possible, to their former owners (iv) or if it is not possible, assign and transfer them to third parties, (v) forbid participation in the control of these undertakings until this assignment takes place and (vi) take all other measures it deems necessary. Moreover, in addition to the said sanctions, the Board also imposes an administrative fine on the relevant undertakings due to the violation of Article 7 of the Law No. 4054. In this case, as defined in Article 16(4) of the Law No. 4054, the Board imposes a monetary fine of up to ten percent of the undertakings’ annual gross revenue generated at the end of the financial year preceding the date of the final decision.
The Board’s Previous Practice
When the Board’s case law is examined, it is seen that there are various decisions where an administrative fine was imposed on undertakings due to the fact that a merger or acquisition subject to the Board’s approval had been carried out before the transaction was notified to the Board and also decisions where an administrative fine was imposed as the Board had not been notified of the transaction at all.
For instance, in Brookfield/JCI decision[3], the Board evaluated that the transaction did not lead into the significant lessening of effective competition. However, the closing date of the transaction which was defined to be subject to approval was 30.04.2019, whereas the notification to the Board had been made on 09.10.2019, nearly 5 months later. The Board approved the transaction. However, as the transaction was realized without the Board’s approval, the Board imposed an administrative fine on the acquirer Brookfield Asset Management Inc. at the rate of one thousandth of its 2018 gross revenue, in accordance with Article 16(1)(b) of the Law No 4054.
In BMW/Daimler/Ford/Porsche/Ionity decision[4], the merger control filing dated 2020 regarding the transaction which envisaged HMG’s acquisition of shares and the participation in the joint control of Ionity, which is jointly controlled by BMW, Daimler, Ford and Porsche was evaluated. In the decision, it is stated that Ionity joint venture was established in 2017. Subsequently, it was mentioned that Ionity was not conducting any activities in Turkiye and therefore, as a result of the transaction, the effective competition would not have been significantly reduced within the meaning of Article 7 of the Law No. 4054. In light of this, the Board approved the transaction. However, as the transaction related to the establishment of Ionity joint venture had not been previously notified to the Board, it was evaluated within the scope of Article 11(a) of the Law No. 4054. As a result, the Board imposed administrative fines on BMW, Daimler, Ford ve Volkswagen[5] as the parent undertakings of the joint venture due to the fact that the transaction was notified to the Board on time. For completeness, the administrative monetary fines defined in accordance with Article 16(b) of the Law No. 4054 were at the rate of one thousandth of the relevant undertaking’s gross revenue generated in 2019.
Administrative Fine Imposed on Elon Musk
There are not many recent decisions where the Board has dealt with gun jumping. However, the Board’s recent decision to impose an administrative fine on Elon Musk sheds light on its current practice with respect to gun jumping.
As a result of the ex-officio examination of the transaction concerning the acquisition of Twitter Inc. by Elon Musk within the scope of Article 11 of the Law No. 4054, the Board decided that the transaction is subject to approval as per Article 7 of the Law No. 4054 and the Communiqué No. 2010/4. The Board decided that the transaction should be granted approval since the transaction would not lead into any significant lessening of effective competition. However, the Board decided to impose an administrative fine on the acquirer Elon Musk, at the rate of one thousandth of the gross income generated in Turkiye in 2022, due to the fact that the transaction was carried out without obtaining approval from the Board.
For the sake of completeness, according to paragraph 21 of the Guidelines on Undertakings Concerned, Turnover and Ancillary Restraints in Mergers and Acquisitions, real persons are individually considered as undertakings within the meaning of the Law No. 4054 in case they carry out economic activities via their rights of control on an economic entity. In acquisitions realized by real persons who are deemed as undertakings, the undertakings concerned will be the acquiring real persons. Therefore, for the case at hand, it is possible to impose an administrative fine directly on Elon Musk as the acquiring undertaking.
The sanction imposed on Elon Musk as a real person is similar to the Board's approach in Ersoy/Sesli decision[6]. In this decision, it was evaluated that the transaction concerning the establishment of the undertaking entitled Anayurt Kömür Madencilik Sanayi ve Ticaret A.Ş. which was jointly controlled by Ali Murat Ersoy, Hazim Sesli, Mehmet Sesli, Abdülkadir Sesli was realized without being notified to the Board. The Board imposed an administrative fine against real persons who were parties to the transaction and were in the position of acquirers, due to failure to notify the transaction regarding the establishment of the joint venture. In this respect, it is possible to conclude that it is a common practice for the Board to impose administrative fines directly on individuals in cases where real persons are acquirers.
Conclusion
Although being subject to the Board’s approval, mergers and acquisitions which are not notified may lead to severe consequences. For this reason, before carrying out any merger or acquisition transaction, it should be carefully evaluated whether it is obligatory to obtain the Board’s approval so that the transaction can gain legal validity. If it is determined that the transaction is subject to the approval of the Board, it is important not to realize the transaction until the Board’s evaluation process is concluded and the transaction is authorized. Considering the Board’s sensitive approach on the subject, it is highly important that economic entities and real persons who are in the position of transaction parties review the notification conditions in Turkiye and their obligations before carrying out any national or international mergers and acquisitions.
- See Turkish Competition Authority’s announcement dated 06.03.2023, https://www.rekabet.gov.tr/tr/Guncel/elon-r-musk-tarafindan-twitter-inc-in-te-7f3c2a3ff0bbed118eb0005056850339 (Last accessed: 21.03.2023).
- The minimum limit for administrative fines, which are applicable within the scope of Law No. 4054, has been determined as 105,688 TL, valid from 01.01.2023 to 31.12.2023.
- The Board’s Brookfield/JCI decision dated 30.04.2020 and numbered 20-21/278-132.
- The Board’s BMW/Daimler/Ford/Porsche/Ionity decision dated 28.07.2020 and numbered 20-36/483-211.
- Ionity's shareholders, BMW, Daimler, Ford and Porsche are qualify as relevant undertakings. Volkswagen, on the other hand, is considered as a transaction party since it controls Porsche.
- The Board’s Ersoy/Sesli decision dated 25.06.2014 and numbered 14-22/422-186.
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