MERGERS AND ACQUISITIONS WITHOUT APPROVAL FROM THE COMPETITION BOARD (GUN JUMPING)

I. INTRODUCTION

The activities of all undertakings operating in, or affecting, the goods and services markets within the borders of the Republic of Türkiye are subject to certain restrictions within the framework of the Law on the Protection of Competition No. 4054 (“Law No. 4054”). In this context, pursuant to Article 7 of Law No. 4054, for transactions that may result in one or more undertakings attaining a dominant position or further strengthening an existing dominant position through merger or acquisition, and that have the potential to significantly reduce competition, it is mandatory to notify the Competition Board (“Board”) and obtain its approval. In this article, the conditions under which such merger and acquisition transactions are subject to Board approval, mergers and acquisitions carried out without notifying the Board (“Gun Jumping”), the definition of merger and acquisition transactions subject to Board approval, the notification obligation, the legal consequences of unnotified transactions and, in light of sample decisions, the concept of Gun Jumping will be examined in detail.

II. THE PLACE OF MERGER AND ACQUISITION TRANSACTIONS IN COMPETITION LAW

Pursuant to Law No. 4054, if the thresholds set out in the Communiqué on Mergers and Acquisitions Requiring the Approval of the Competition Board (Communiqué No. 2010/4), published in the Official Gazette dated 07.10.2010 and numbered 27722 (“Communiqué”), are exceeded, it is mandatory to obtain prior approval from the Board for the transaction. Mergers and acquisitions requiring approval from the Board cover transactions that exceed certain thresholds and bring about a permanent change in control, as set out in the Communiqué. In this framework, pursuant to Article 5 of the Communiqué: “For the purposes of bringing about a Permanent change in control; a) The merger of two or more undertakings, or b) The acquisition by one or more undertakings or by one or more persons who already control at least one undertaking, through purchase of shares or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more undertakings, shall be deemed a merger or acquisition within the scope of Article 7 of the Law.”

Such concentration transactions that bring about a permanent change in control may acquire legal validity only with the Board’s approval if they exceed the turnover thresholds in Article 7 of the Communiqué1. If the aggregate Turkish turnover of the parties to the transaction exceeds 750 million Turkish Liras and the Turkish turnover of at least two of the parties separately exceeds 250 million Turkish Liras, the transaction is subject to Board approval in order to be legally valid. Similarly, in acquisitions, if the Turkish turnover of the activity subject to the acquisition exceeds 250 Turkish Liras million and the worldwide turnover of at least one of the other parties exceeds 3 billion Turkish Liras, the obligation to obtain approval arises again.

The same logic applies to mergers; if the Turkish turnover of one of the parties exceeds 250 million Turkish Liras and the worldwide turnover of one of the other parties exceeds 3 billion Turkish Liras, notification is mandatory. By contrast, if the thresholds are not met, there is no obligation to obtain approval. However, in the acquisition of technology undertakings that operate in Türkiye, carry out R&D, or offer services to users in Türkiye, the turnover threshold of 250 million Turkish Liras does not apply; therefore, even if the Turkish turnover of the target undertaking is low, if the acquirer’s worldwide turnover exceeds 3 billion Turkish Liras, the transaction is subject to Board approval.

Pursuant to the first paragraph of Article 7 of Law No. 4054: “Mergers of one or more undertakings, or, excluding cases of acquisition by way of inheritance, the acquisition by an undertaking or a person of all or part of the assets or partnership shares of another undertaking or of instruments conferring the right to have a say in management, in such a way as to significantly reduce effective competition in any goods or services market in the whole or a part of the country, notably by creating a dominant position or strengthening an existing dominant position, are unlawful and prohibited.”

Under this article, mergers and acquisitions are assessed not only formally but also in terms of their effects on the market. In particular, transactions that cause the creation or strengthening of a dominant position and that carry a risk of significantly reducing effective competition are prohibited. Thus, the competition authority is able to take preventive action not only against existing infringements but also against potential threats to competition.

According to Article 7/II of Law No. 4054, the Board announces by way of a communiqué which types of mergers and acquisitions must be notified to the Board and approved in order to acquire legal validity.

Therefore, the types of transactions and thresholds envisaged under the Communiqué constitute the concrete basis of the notification obligation laid down in Article 7 of Law No. 4054 and thereby determine the validity of merger and acquisition transactions under competition law.

Pursuant to Article 10 of Law No. 4054, merger and acquisition transactions that fall within the scope of Article 7 of the same Law and meet the conditions specified in the Communiqué are subject to a preliminary review within fifteen days from the date of notification. Therefore, the types of transactions and thresholds envisaged under the Communiqué constitute the concrete basis of the notification obligation laid down in Article 7 of Law No. 4054 and thereby determine the validity of merger and acquisition transactions under competition law. According to Article 10 of Law No. 4054, merger and acquisition transactions that meet the conditions specified in the Communiqué are subject to a preliminary review within 15 (fifteen) days from the date they are notified to the Board; within this period the Board may clear the transaction or refer it to an Final review. If the Board does not respond or take action within the time limit, merger or acquisition agreements enter into force and acquire legal validity 30 (thirty) days from the date of notification2. However, pursuant to Article 11 of the Communiqué, if the information in the Notification Form is incorrect, misleading or incomplete, or if that information is subsequently changed, the “notification” shall be deemed to have been made on the date on which such deficiencies are remedied or the changes are made; therefore the 15 (fifteen) and 30 (thirty) day periods referred to in Article 10 of Law No. 4054 shall start running from the date of “valid notification”.

If merger and acquisition transactions subject to Board approval are carried out without notification, the sanctions to be applied in such a case are assessed under Article 11 of Law No. 4054. If the transaction does not create a dominant position or significantly reduce competition within the scope of Article 7, the transaction may be approved by the Board; however, an administrative monetary fine is imposed because it was carried out without notification. On the other hand, if the transaction is of a nature that significantly distorts competition, the Board may decide to annul the transaction, request the parties to restore the previous situation and, if necessary, impose an administrative monetary fine together with additional remedies.

III. EUROPEAN UNION PRE-NOTIFICATION AND POST-NOTIFICATION REFERRAL PROCEDURES IN EU MERGER CONTROL3

A. Pre-Notification Referral Procedures

According to the EU Merger Regulation (“Regulation”), the parties concerned may, by means of a reasoned submission, request that a case be referred to a given Member State’s authority by arguing that, although the proposed transaction constitutes a concentration with a European Union dimension, it affects competition in a specific Member State market. If the relevant Member State does not object within 15 (fifteen) working days from the date on which the application reaches it, the European Commission (“Commission”) may, within 25 (twenty-five) working days, refer the whole or part of the case to the competent authorities of that Member State. The same procedure also applies to transactions that do not have an EU dimension but may be subject to the national competition laws of three or more Member States.

When the Commission receives a notification, it assesses at Phase I whether the transaction falls within the scope of the Regulation, whether it is compatible with the common market, or whether there are serious doubts as to its compatibility. Where necessary, it proceeds to a Phase II investigation. If it is decided that a concentration already implemented is incompatible, the Commission may order the dissolution of the transaction or a return to the previous situation and may impose obligations to ensure compliance with commitments. In the event of infringements of the Regulation, the Commission may impose fines ranging from 1% (one percent) to 10% (ten percent) of the total turnover and periodic penalty payments of up to 5% (five percent) of the daily turnover in cases of the provision of incorrect information, implementation without notification, or breach of decisions.

B. Post-Notification Referral Procedures

Upon receiving a copy of the notification, Member States may, within 15 (fifteen) working days, apply to the Commission stating that the concentration significantly affects competition in their domestic markets. If the Commission concludes that the relevant market has the characteristics of a distinct market, it may refer the whole or part of the case to the competent authorities of the Member State concerned; if the distinct market constitutes a substantial part of the common market, it will refer the case only in respect of the relevant part.

Following notification, the Commission has 25 (twenty-five) working days in Phase I and 65 (sixty-five) working days in Phase II to define the scope of the case and decide whether to refer it. If no decision is taken within these periods, a referral shall be deemed to have been made. In addition, for transactions that do not have an EU dimension but affect trade between Member States, the Member States may request the Commission to initiate an investigation. The Commission informs the other Member States of the request and allows them 15 (fifteen) working days to join; if no decision is taken within 10 (ten) working days from the expiry of this period, the request shall be deemed accepted.

IV. THE CONCEPT OF GUN JUMPING

While the concept of “Gun Jumping” essentially refers, in sports such as athletics, to starting to run before the starting signal is given, it has a different meaning in the context of competition law. This concept is used to describe conducts such as entering into agreements of a restrictive nature between undertakings that are parties to a merger or acquisition transaction, exchanging competitively sensitive information, or proceeding to an economic integration or coordination in an unlawful manner before the necessary notification is made to the Board or the necessary approval is obtained from the Board.

In the assessment of Gun Jumping, the question of which information may be shared during the merger process should be evaluated according to the specific circumstances of the case and the characteristics of the sector. Within the scope of due diligence, access by the acquirer to the information necessary and proportionate to understand “what it is acquiring” is possible; however, such sharing should be conducted as far as possible on a historical and aggregated basis for competitively sensitive data and should be limited through clean team/ data room4 arrangements5.

On the other hand, before closing, the acquirer’s intervention in the target’s day-to-day commercial decisions (for example pricing, customer/ supplier relations, campaigns and logistics) or the establishment of de facto/ prior approval rights over these decisions creates a risk of implementation of the transaction (standstill infringement)6. By contrast, limited ‘ordinary course of business’ clauses aimed at preserving the value of the target—such as preventing asset disposals above a certain threshold, extraordinary dividends or widespread layoffs—are not in themselves considered Gun Jumping; such protective commitments should be designed so as not to give the acquirer “control” before closing.

A. Types of Gun Jumping

Gun Jumping is not only an unauthorised merger or acquisition transaction, but also means a breach of competition law obligations in the pre-transaction period. In this context, Gun Jumping can be classified horizontally and vertically. Horizontal Gun Jumping occurs where, in concentration transactions in which the parties are competitors, the parties engage, before the necessary notification to the Board or the Commission or before approval, in the sharing of competitively sensitive information or coordination with respect to price, customers, data, capacity, etc. In particular, in the absence of a “clean team” arrangement, such information exchange is deemed harmful and unlawful and may be subject to sanctions7.

In the concept of vertical Gun Jumping, where one of the parties is a supplier and the other is a buyer or customer; before closing, the acquirer’s intervention in the target’s daily operations (for example price, logistics, communication with customers, campaigns) or the establishment of de facto or contractual team control over these decisions is at issue. Such conduct, in breach of the standstill obligation, may be considered early implementation (Gun Jumping) and be subject to sanctions. Conversely, where value-preserving and ordinary-course measures are within reasonable limits, they are not considered Gun Jumping8. For example, conduct such as the acquirer’s intervention in the target undertaking’s purchasing or sales decisions, involvement in the appointment of its managers, or direct impact on its internal processes are examples of vertical Gun Jumping. In this case, a de facto merger effect is created before the transfer of control takes place, which means an unauthorised change of control.

V. SANCTIONS AND LEGAL CONSEQUENCES

A. Legal Invalidity of the Transaction

Pursuant to Articles 7/2 and 10/2 of Law No. 4054, merger and acquisition transactions subject to the Board’s approval acquire legal validity only if the Board grants approval. In other words, such transactions carried out without the Board’s approval shall be deemed invalid under Turkish law with all their legal consequences.

Imposition of an Administrative Monetary Fine Due to Completion Without Board Approval and/or Failure to Fulfil the Notification Obligation

Pursuant to Article 16/1-b of Law No. 4054, where merger and acquisition transactions subject to Board approval are carried out without approval, administrative monetary fines are imposed on the undertakings9 concerned. This fine is calculated at the rate of one per thousand of the annual gross revenue (turnover) determined by the Board, based on the financial year ending prior to the decision—or if this cannot be calculated, the financial year closest to the date of the decision. The addressee of the fine varies according to the type of transaction. In merger transactions, each party is fined separately, whereas in acquisition transactions only the acquiring undertaking is fined.

This sanction is applied regardless of whether competition is distorted after the transaction or whether the transaction is subsequently approved by the Board, and is intended to deter the de facto completion of the transaction before approval is obtained.

Administrative Monetary Fine for Carrying Out a Transaction Without Board Approval that Would Significantly Reduce Effective Competition

Pursuant to Article 7 of Law No. 4054, transactions in which one or more undertakings merge or an undertaking (excluding inheritance) acquires the assets, partnership shares or instruments conferring management rights of another undertaking, resulting in the significant reduction of effective competition or the creation or strengthening of a dominant position in any goods or services market in the whole or a part of Türkiye, are deemed unlawful and prohibited.

In addition, pursuant to Article 16/2 of Law No. 4054, if a transaction subject to Board approval and at the same time causing a serious reduction in effective competition is carried out without approval, the undertakings concerned may be subject to administrative monetary fines of up to 10% of their annual gross revenues determined by the Board—based on the financial year ending prior to the final decision or, if this is not possible, the financial year closest to the date of the final decision.

VI. EXAMPLES OF GUN JUMPING

A. Elon R. Musk/ Twitter Decision (23-12/197-66; 02.03.2023)

In the recent Elon R. Musk/ Twitter (23-12/197-66; 02.03.2023) decision, the Board initiated an ex officio review upon the informal statements made on 14.04.2022 regarding Elon Musk’s acquisition of Twitter Inc. (a technology company providing online social media services)10. It was established that the acquisition was subject to the Board’s prior approval, but that no notification had been made in this regard. After opening the case, the Board invited the parties to apply for approval and requested their defences. As a result, the Board held that:

The transaction was subject to the Board’s approval,

That no dominant position would be created or an existing dominant position strengthened within the scope of Article 7 of Law No. 4054 and, therefore, that the acquisition could be approved on the ground that it would not significantly reduce competition,

However, due to the implementation of the transaction without the Board’s approval, an administrative monetary fine at the rate of one per thousand of Elon Musk’s gross revenue obtained in Türkiye in 2022 should be imposed on Elon Musk as the acquiring party.

B. Superonline/ Vestelnet Decision (08.05.2003, 03-31/380-167)

The Board’s Superonline/ Vestelnet Decision dated 08.05.2003 and numbered 03-31/380-167 is one of the first precedent decisions in Türkiye on Gun Jumping (unauthorised mergers and acquisitions). In this case, it was established that with the “Infrastructure Sharing Agreement” signed between Superonline and Vestelnet, the parties took significant steps to combine their activities in the field of internet services, but that the transaction was implemented without prior approval from the Board, although it constituted a merger or acquisition within the scope of Article 7 of Law No. 4054. The Board stated that the transaction did not significantly reduce effective competition and did not constitute a substantive competition infringement; however, it assessed that the de facto implementation of the transaction without the Board’s prior approval was contrary to the legislation. For this reason, the Board decided to impose administrative monetary fines on both parties solely due to the breach of the notification obligation. This decision has taken its place in the literature and practice as the first decision in Türkiye in which Gun Jumping was defined and penalised as a formal infringement.

C. European Union/ Altice Decision

Another important decision regarding Gun Jumping criteria is the Commission’s “Altice” decision. In this decision, behaviours leading to a change of control were examined and actions aimed at preventing a loss of value of the target company to protect the acquirer’s interest were addressed11.

In the acquisition of PT Portugal by Altice, the share purchase agreement envisaged provisions granting approval/ veto rights and broad information access over the target. Due to these provisions and the parties’ actual conduct, the Commission held that Altice obtained an early ability to exercise control/ decisive influence in breach of the standstill12 obligation and without fulfilling the notification obligation13.

As seen from the examples here, the Elon R. Musk/ Twitter, Superonline/ Vestelnet and the Commission’s Altice decisions show that the risk of Gun Jumping in merger and acquisition transactions has serious consequences both in Türkiye and in the European Union. These decisions reveal that formal infringements of pre-notification and the standstill obligation may be subject to administrative monetary fines regardless of whether the transaction substantively distorts competition.

In particular, the Altice decision confirmed that creating a de facto control effect through provisions such as broad veto/approval rights and early access to information over the target would be considered a standstill infringement and that separate fines could be imposed for two separate infringements (notification and implementation). The Musk/ Twitter and Superonline/ Vestelnet examples show that in Turkish law, unauthorised or unnotified transactions are formally sanctioned with an administrative monetary fine at the rate of one per thousand, and that the fact that the transaction did not substantively reduce competition does not change this outcome. These precedent decisions demonstrate that the parties must be extremely careful in pre-closing information sharing, coordination and integration steps and that calibrated veto rights in contract design are of critical importance.

D. BMW/ Daimler/ Ford/ Porsche/ Ionity Decision (TCA – 28.07.2020)

In its decision dated 24.07.2020 and numbered 20-35/457-203, the Board examined the participation of Hyundai and Kia, affiliated to the Hyundai Motor Group, in the joint control of IONITY Holding GmbH & Co.KG, a joint venture of BMW, Daimler, Ford and Porsche, through a capital increase.

The Board determined that the transaction did not give rise to any horizontal or vertical competition concerns in Türkiye, and that IONITY Holding GmbH & Co.KG was not active in Türkiye nor expected to be active in the near future. In this framework, the acquisition was characterised as an acquisition requiring approval under Article 7 of Law No. 4054 and the Communiqué, but it was approved on the ground that it did not pose a significant risk of reducing competition.

However, due to the failure to fulfil the notification obligation to the Board in due time, administrative monetary fines were imposed on the parties pursuant to Article 16 of Law No. 4054. This shows that competition authorities meticulously supervise not only the competitive effects of the transaction, but also whether the procedural obligations have been fulfilled. Indeed, this decision has taken its place in the literature as an illustrative Gun Jumping case emphasising the importance of compliance with the standstill obligation in transactions subject to approval14.

VII. THE IMPORTANCE OF COMPETITION LAW COMPLIANCE IN SHARE PURCHASE AGREEMENTS

In merger and acquisition transactions, the parties generally sign a share purchase agreement. This agreement regulates the terms of the transaction, the rights and obligations of the parties and how the transaction will be completed. However, even if a share purchase agreement has been signed, if the transaction is subject to the Board’s approval, the commencement of the implementation of the agreement without such approval constitutes a breach of law.

De facto transfers without approval or the acquirer’s starting to establish control over the target company are considered Gun Jumping before the Board. In such a case, not only administrative monetary fines are imposed; the transaction may also be deemed legally invalid. This may result in the undertakings being unable to perform their commitments under the share purchase agreement and suffering losses. For example, the buyer may have allocated financial resources and taken strategic decisions on the basis that the transaction will close. The seller may have planned other investments by relying on the value of the company. If the transaction is deemed invalid, this reliance may be frustrated, leading to serious contractual and commercial losses.

Therefore, share purchase agreements must include a clause stating that “the transaction cannot be implemented without the Competition Board’s approval” (conditions precedent), and the parties must respect this process.

If the parties, relying on a share purchase agreement signed without obtaining the Board’s approval, start the transaction process de facto and incur various costs during this process, they may suffer serious losses if the transaction is deemed legally invalid. These losses may include preparatory expenses for the transaction, consultancy fees, changes in strategic plans and reputational losses, as material and moral consequences. In such a case, the aggrieved party may claim compensation under contractual liability due to the breach of the commitments set out in the agreement, or on the basis of fault pursuant to Articles 49 and 112 of the Turkish Code of Obligations No. 6098. To prevent these risks, it should be clearly stipulated in the share purchase agreement that the transaction will not enter into force without the Board’s approval, and compensation arrangements for potential losses should be envisaged in advance between the parties.

VIII. PRACTICAL ISSUES ENCOUNTERED AND PROPOSED SOLUTIONS

One of the main practical issues encountered in merger and acquisition transactions subject to the Board’s approval is that the parties misinterpret or incompletely interpret the relevant thresholds and the concept of control. Especially in undertakings with multinational or group company structures, the risk of carrying out an unauthorised transaction increases due to the parties’ inability to accurately determine which turnover items should be included in the notification calculation. In addition, there are differences in interpretation as to whether conduct such as information sharing, commercial coordination or managerial intervention between the parties during the pre-transaction period amounts to a transfer of control. Such early integration steps create the impression that the transaction has been implemented de facto before it has been legally completed and may be considered by the Board as a formal infringement within the scope of Gun Jumping and be subject to administrative sanctions.

To eliminate these issues, undertakings should primarily work with advisors who have the capacity to conduct technical assessments under competition law at every stage of the transaction process. In the presence of uncertainties as to whether notification is required, seeking the Board’s opinion (pre-notification)15 may in practice prevent potential infringements. Furthermore, clear lines should be drawn between the parties with respect to information sharing, commercial contacts and contractual provisions relating to the pre-transaction period; explicit “standstill” clauses and protocols that will apply until approval should be developed in these areas. The practice shaped by the Board’s decisions shows that the parties must act carefully in transaction design and contract texts; in particular, they should avoid any steps that will create any de facto managerial influence before the transfer of control takes place. In this framework, it should be taken into account that procedural obligations are not merely formal but may have material consequences; merger and acquisition processes should be conducted meticulously not only in terms of competitive effects but also in terms of formal compliance.

IX. CONCLUSION

In conclusion, acting without obtaining the Board’s approval in merger and acquisition transactions does not remain merely a breach of a formal obligation; it also brings with it the risks of severe financial sanctions and reputational loss for undertakings. Any early economic integration, information sharing or de facto transfer of control falling within the scope of Gun Jumping is meticulously supervised under both Turkish Competition Law and European Union practice, and, where necessary, is met with administrative monetary fines even if the transaction does not substantively distort competition. This explicitly shows that procedural obligations create a separate legal responsibility independent of the material effects of the transaction. Therefore, obtaining competition law advice at every stage of merger and acquisition processes, correctly assessing whether notification is required, and carefully managing inter-party relations particularly before closing have become necessary both for legal compliance and for commercial sustainability.