TRANSITION OF MINORITY SHAREHOLDINGS UNDER THE COMPETITION LAW 18 October 2022
TRANSITION OF MINORITY SHAREHOLDINGS UNDER THE COMPETITION LAW
1. INTRODUCTION
Transition of minority shareholdings is mostly handled within the scope of mergers and acquisitions, and in this context, it is examined in the light of Article 7 of the Law on the Protection of Competition (“RKHK”) numbered 4054, which regulates mergers and acquisitions.
The concept of control is very important in determining whether the transaction/transactions in question are subject to permission in the transition of minority shareholdings, and this concept is explained through the Communiqué No. 2010/4 on Mergers and Acquisitions Requiring Permission from the Competition Board. (‘‘Communiqué’’) Pursuant to the aforementioned Communiqué, if there is a permanent change in control, the transaction is considered subject to permission. Unless a permanent change is achieved, the transitions of minority shareholdings are not considered within the scope of mergers and acquisitions.
2.ACQUSITION AND CONCEPT OF CONTROL
In Article 5 of the Communiqué, direct or indirect control of all or a part of one or more corporations, through the purchase of shares or assets, by contract or by other means, one or more corporations, or the acquisition by one or more persons who currently control at least one corporation is considered an acquisition within the scope of Article 7 of the Law.
As mentioned, for an acquisition to occur, control must be taken over. As stated in the Communiqué, control is provided by means that allow it to exert a decisive influence on a corporation, and in addition to the instruments, it can also be regulated as existing judicially or factually. As an example of this situation; control and transition of minority shareholdings can be given through the acquisition of shares and assets. In addition, control may appear as single or joint control.
3. SINGLE CONTROL
In short, in cases where there is only one control, one corporation alone has a decisive influence on another corporation. An example of this control is when the corporation has the right to take strategic decisions, that is, the acquisition of the majority of voting rights in a company in general. In addition, even if it cannot take strategic decisions on its own, it is an example of a situation that only one shareholder can veto these decisions in a corporation, where there is single control. In addition, such control can be created judicially or factually.
3.1 JUDICIAL SINGLE CONTROL
An example of the scope of judicial single control is the acquisition of the majority of voting rights in a company, as mentioned. In the case of minority shareholdings, special rights such as the power to appoint more than half of the board of directors granted to the minority rights holder may provide the single control judicially.
In addition, rights such as managing the operations of the company owned by the minority shareholder and deciding on the operating policies can also constitute single control.
3.2 FACTUAL SINGLE CONTROL
Situations may also arise where a minority shareholder has factual single control. Factual single control is valid in cases where minority shareholders can obtain a majority at the general assembly meeting based on their shareholding ratios and their level of attendance at past general assembly meetings.
If a minority shareholder is likely to obtain a majority of votes in general assembly meetings, such as the share rate, and voting style, that shareholder is deemed to have the single control.
4. JOINT CONTROL
In the case of joint control, there is joint control in which two or more corporations or individuals exert decisive influence over another corporation. In this context, as mentioned in the regulation, decisive influence means the authority to prevent actions that determine the strategic commercial behavior of a corporation.
Contrary to single control, in joint control, the shareholders have to agree on a common denominator, and cooperate in a sense while determining the commercial relations of the enterprise. In addition, joint control can arise in two different situations, judicial and factual. Examples of these situations are:
• Equality in Voting Rights or Appointment to Decision-Making Bodies
• Veto Rights
• Joint Use of Voting Rights
• Other Factors Related to Joint Control
5. ANTI-COMPETITIVE EFFECTS OF HORIZONTAL INTEGRATION
In competition law, mergers and acquisitions between existing and potential competitors in the same relevant product markets are defined as horizontal mergers and acquisitions.[1] In this context, mergers and acquisitions between competitors are evaluated within the framework of the Guidelines on the Evaluation of Horizontal Mergers and Acquisitions by the Competition Board.
Situations that may create anti-competitive effects within the scope of the Regulation are explained as significant inhibition of effective competition, primarily by creating or strengthening a dominant position.
A merger and acquisition transaction can increase market power and significantly reduce competition, and this can be an example of unilateral anti-competitive effects. In addition, ensuring coordination between corporations that did not have coordination before, and the fact that this situation significantly reduces competition is another factor that creates an anti-competitive effect.
If a transaction of minority shareholding is evaluated within the scope of mergers and acquisitions, it can provide coordination between competitors due to the shareholder's role in management, and thus create an anti-competitive effect. In this context, it can be examined in line with the evaluations made. However, it would be more appropriate to evaluate each concrete case within itself and not to generalize accordingly to it.
6. CONCLUSION
As mentioned before, transaction of minority shareholdings are deemed subject to permission if they cause permanent changes and are evaluated within the scope of the Communiqué. Also, for an acquisition to occur, control must be taken over.
As stated in the Communiqué, control is achieved by giving the opportunity to exert a decisive influence on a corporation by various means, whether in law or in fact. Besides these, it can be arranged single or jointly. At the same time, in cases where there is only single control, control can be created judicially and factually. Contrary to single control, in joint control, the shareholders have to be inclined to reach an agreement on a common denominator while determining the commercial relations of the enterprise.
