Under the microscope: How the Turkish Competition Authority finds out about unnotified transactions
October 2019 – Similar to many other European jurisdictions, the Turkish merger control regime requires that mergers and acquisitions that exceed certain jurisdictional thresholds are notified. Failure to notify a notifiable transaction may not only result in administrative monetary fines but risks invalidity of the transaction itself under Article 7 of the Law. 4054 on Protection of Competition (“the Law No. 4054”). However, there is always a question of how a competition authority actually becomes aware of a transaction that was not notified. A recent interesting decision of Turkish Competition Board sheds light on this issue.
Competition Authority Investigation
The Turkish Competition Authority (“TCA”) initiated a preliminary investigation after an anonymous complaint on August 2018 was sent to it regarding certain transactions that were entered into in the ready-mixed concrete market in the Turkish city of Yozgat in central Anatolia. Although the exact content of the complaint cannot be seen from the reasoned decision, it prompted the Competition Board to initiate an ex officio preliminary investigation regarding four separate transactions that had taken place over several years as to whether these transactions should have been notified prior to closing. Article 11 of the Law No. 4054 states: “Where a notifiable merger or acquisition is not notified to the Board, the Board shall take the merger or acquisition under examination on its own initiative, when it is informed of the transaction in any way.” After assessing the four separate transactions it was decided that none of these transactions triggered the jurisdictional thresholds under the Article 7 of the Communiqué No. 2010/4 on Mergers and Acquisitions Subject to the Approval of the Competition Board (the “Communique”).
The decision is interesting as such ex officio preliminary investigations on the notifiability of transactions have not been very common. Especially in this instance the Board decided to assess four completely separate transactions within the scope of a single preliminary investigation. Another interesting aspect of this decision was that one of the transactions was closed as far as back as 2013. There is no time bar in the law as to how far back the TCA may investigate unnotified transactions. Therefore, the TCA may even investigate transactions that occurred many years ago.
As Article 11 of the Law No. 4054 makes clear, the Board may investigate a transaction not just because of a third-party complaint (as it did in this particular case), but also while investigating another matter or while turning the pages of business magazines, clicking through financial news portals and other publicly available sources.
What Happens When You Fail to Notify?
Where parties to a transaction breach their notification requirement by closing a transaction without receiving the approval of the Board of the TCA or indeed failing to notify at all, the Board will impose an administrative fine of the 0.1% of the Turkish turnover of the previous fiscal year of the relevant undertaking(s) pursuant to Article 16 of Law No.4054 with a minimum floor fine of TRY 26,027 for the year of 2019 (equivalent of around EUR 4,000 or USD 4,465 at today’s exchange rates). If the transaction is an acquisition, the acquiror is solely liable to pay the fine imposed by the Board, and if the transaction is a merger transaction then all of the relevant parties are liable.
More seriously failure to notify a notifiable transaction may risk the invalidity of the transaction itself unless approval of the Board is granted. Therefore, in this scenario, the parties to a notifiable transaction may not be able to enforce their rights arising out of the relevant transaction such as using their shares, exercising veto rights, taking dividends or any other rights until Board clearance is obtained.
Furthermore, pursuant to Article 11/b of the Law No. 4054, if such a transaction is found by the Board to create or strengthen a dominant position, additional monetary fines and measures can be imposed. In this regard the Board may:
i. launch a full investigation ex officio regarding the transaction and to decide to restore the situation as it was before the transaction if deemed necessary;
ii. impose a fine in the amount of up to 10% of the parties’ Turkish annual turnover on each relevant undertaking if the Board finds out that the transaction creates or strengthens a dominant position in the relevant market; and
iii. if the Board decides that certain employees and/or managers of the undertakings have played a decisive role in the violation of the law, they may also receive an administrative monetary fine up to 5% of the fine that their companies receive.
Lessons to Be Learnt
It is always tempting for businesses under time or financial pressure to go forward with completing an M&A transaction without taking competition law advice or deciding to take a risk in the hope that a seemingly low-profile transaction will not attract scrutiny. However, the TCA does track transactions in the market quite closely and there are many potential complainants who are only be too happy to notify the TCA of potential violations. As can be seen in the above investigation, the TCA takes potential violations seriously and the range of sanctions are very severe ranging from monetary fines to invalidity of the transaction itself. Competition law advice should be sought in every transaction resulting in a potential change in control of an entity in Turkey no matter how large or small the deal may be to the parties concerned. This applies both to transactions that take place in Turkey or in global transactions where there has been an indirect change in the control of a Turkish entity.