Control of Mergers & Acquisitions Resulting From Privatization Process

In the broadest sense, privatization is the transfer of the ownership and management of economic production units from the public to the private sector, and privatizations are one of the very important issues at the top of the Turkish agenda which needs to be solved with a regulation that is as fast and efficient as possible.

Privatizations have become increasingly widespread globally in the last 20 years based on the facts that private sector can get more productive results than public sector in the production of goods and services, and that bringing economic activities completely within the market operation can improve resource and production efficiency; and Competition Authority practices play an important role in concluding privatizations in line with these expected goals. This is because creating, developing and sustaining a competitive market environment as a result of privatization transactions are among the leading requirements of ensuring efficiency in both resource allocation and production in the economy. Particularly in the privatization of natural monopolies and legal monopolies created by granting exclusive rights, it is very important to ensure efficient competition conditions within the relevant markets as a result of the privatization. Therefore, the goal of privatization is not to transfer public assets and rights to the highest bidder, or to a single buyer in case of exclusive buyers. Besides, a well-designed privatization may serve to increase both the income from the privatization and the functionality of the market mechanism through the protection of competitive conditions within the relevant market.

Privatization transactions concerning the acquisition of public undertakings by private undertakings are handled under article 7 of the Act no 4054, titled "Mergers and Acquisitions"; however, in contrast with mergers and acquisitions between private sector undertakings, they are not assessed within the framework of the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board, No:2010/4 (Communiqué no 2010/4), which was issued in order to determine the principles and procedures related to the implementation of article 7 of the Act. In consideration of the separate legal process laid out for acquisitions via privatizations as well as in light of the decisive effect of privatizations on the competitive structure of the relevant markets, Communiqué on the Procedures and Principles to be Pursued in Pre-Notifications and Authorization Applications to be Filed with the Competition Authority in order for Acquisitions via Privatization to Become Legally Valid, Amended by the Competition Board Communiqué No. 1998/5 (Communiqué no 1998/4) was issued concerning the principles and procedures to be followed in privatization transactions. Privatizations are assessed under the provisions of this Communiqué.

In terms of competition law, Communiqué no 1998/4 divides the process related to privatization transactions into two stages; namely, the pre-notification stage and the (final) authorization stage. Within this framework, before the announcement of the tender specifications to the public, a pre-notification must be made to the Competition Authority. During the pre-notification stage, Competition Board evaluates the results of such a privatization within the relevant market and the status of any legal and de facto concessions that might be held by the undertaking to be privatized, after which it prepares the Competition Board Opinion which will serve as the basis for the tender specifications document on these subjects. Basically, this opinion forms the phase in which the Competition Authority lays out its recommendations concerning what can be done privatization in question to ensure a more competitive market and carries out its function as a Competition Consultant. 

Following the pre-notification phase, during the stage when the final acquisition transaction is to completed, the authorization application of the Privatization Administration is submitted to the Competition Authority in the form of independent files for each bidder to be presented by the Privatization Administration to the High Board of Privatization (which will be included in the draft decision of the Privatization High Board). At this stage, the acquisition to be implemented by the bidders within the framework of the privatization is subjected to a final evaluation under article 7 of the Act no 4054.