Turkey: Behavioral Remedies Under Judicial Review: The Court Says "Not Enough"

The 9th Administrative Court of Ankara ("Court") ordered stay of execution of the Board's conditional approval[1] to the acquisition of Mardaş Marmara Deniz İşletmeciliği A.Ş. ("Mardaş") by Limar Liman ve Gemi İşletmeleri A.Ş. ("Limar") (through its wholly owned subsidiary Arter Terminal İşletmeleri A.Ş. ("Arter")) which is ultimately controlled by Arkas Group ("Transaction"). In short, the Court based its judgment on the finding that the behavioral remedies accepted by the Board were not adequate to address the competition concerns and therefore the Board's conditional approval could not be deemed lawful. Hence, the Court decided that the Board's approval had no legal founding, and implementation of such unlawful act would result in irrevocable damages.

For background information on the Transaction, Limar (through Arter), which is ultimately controlled by Arkas Group, notified the Authority of its intention to acquire all shares in Mardaş. Mardaş is active in container handling services, temporary storage (duty- paid) services, guidance and towage services (through its shares in Ambarlı Römorkaj Pilotaj Ticaret A.Ş. ("Arpaş")) and supportive services (through its shares in Ambarlı Liman Tesisleri Tic. A.Ş. ("Altaş")) at Ambarlı Port (Istanbul). As the acquiring party, Limar provides port services at several ports such as Izmir, Borusan, Limaş, Mersin MIP, Haydarpaşa, DP World Yarımca and İskenderun Limak. Limar's activities in the Ambarlı region has been carried out under the auspices of Marport Liman İşletmeleri Sanayi ve Ticaret A.Ş. ("Marport") which is a joint venture controlled by Arkas Group and MSC Gemi Acenteliği Anonim Şirketi ("MSC").

In its assessment, the Board took into account the activities of Mardaş as well as Arkas Group and defined the relevant product markets as "terminal services for container handling concerning hinterland traffic", "terminal services for container handling for transit traffic", "temporary storage (duty-paid) services", "guidance and towage services" and "supportive services of Ambarlı Port". Moreover, the Board also evaluated "container shipping line operations services" and "vessel agency services" of Arkas Group with regards to vertical effects of the Transaction. The Board provided geographical market definitions for each of the relevant product markets.[2]

With regards to horizontal overlaps between the parties' activities, the Board found that competitive concerns arose particularly with regards to container handling services market[3] (i) in the Northwest Marmara sub-region, Marport's (controlled by Arkas Group and MSC) market share was 53.3%, and Mardaş's market share was 8.2% in 2016 whereas (ii) in the Marmara region, Marport's market share was 34.1% and Mardaş's market share was 5.2% in 2016. In this regard, the Board found that (i) the level of concentration in the container handling services market, (ii) the existence of strong competitors and (iii) the expected capacity increases in the nearby ports (along with new entrants) meant that the no single undertaking could hold a dominant position in the market. That being said, the Board noted that the Transaction could lead to creation of collective dominance bearing in mind that (i) Arkas Group's partner in Marport, MSC was also active in the Northwest Marmara sub-region through Asyaport (Tekirdağ), and (ii) three of the four ports in the Northwest Marmara sub-region would be controlled by shareholders of Marport (collective market share reaching 81.2% in the Northwest Marmara sub-region and 51.9% in the Marmara region). Moreover, the Board also took into consideration (i) entry barriers (due to unused capacity), (ii) MSC and Arkas Group being competitors in container transportation market and MSC's agreement with Maersk within the 2M Alliance, and (iii) post-Transaction coordination risks in its assessment and found that these would contribute to the incentives to coordinate behaviors in the market and, therefore, lead to a collective dominant position by MSC and Arkas Group.

As for the vertical relations, the Board found that the Transaction could lead to input foreclosure in container shipping line operations services (due to cross-shareholdings among undertakings). Particularly, the Board noted that the Mardaş port and the alternative ports (other than Kumport) would be controlled by Arkas Group (and its business partners) and access to these ports would be potentially restricted if Arkas Group decided to engage in discrimination against competing container shipping line operators.

In order to address the Board's concerns, the parties submitted a remedy package comprised of behavioral remedies targeting both horizontal and vertical concerns. With respect to horizontal competition concerns in the container handling services market, the parties undertook to dissociate corporate bodies of Marport and Mardaş (i.e., operational and legal dissociation, such as operating under the direction of different governing bodies, board of directors, general managers etc.; operating from different facilities; not sharing confidential and sensitive information with each other (and also taking additional measures to restrict information flow and introducing independent audit firms for inspection of the information flow); ensuring adequate resources for independent activities; employing different personnel in accounting and legal departments and operating with different tools (such as vehicles, cranes etc.)). Additionally, in relation to the vertical competition concerns in the downstream container shipping line operations services and the upstream container handling services market, Arkas Group undertook several remedies involving (i) not changing the commercial terms, operations and certain services offered to current feeder and/or deep sea liner customers of Mardaş for 36 months from the date of the Share Purchase Agreement, (ii) not amending Mardaş's 2017 Standard Port Services Tariff for 12 months from the date of the Share Purchase Agreement, and (iii) following this 12 month period, determining new tariffs in light of competition in the market and avoid excessive pricing and, upon request, informing the Authority of these prices every six months. Additionally, the parties undertook to provide services to Arkas Group and its business partners' services on the basis of non- discriminatory and objective commercial terms. In order to address the concerns of risk of coordination, the parties undertook to set up mechanisms for the sake of data security of Arkas Group and Mardaş.

Subsequent to the Board's decision, Kumport (a port also operating in Northwest Marmara) filed an administrative lawsuit against the Board whereby suspension of the said decision was also requested due to likelihood of arising of irrecoverable damages from the Transaction. The Court emphasized that proposed remedies were required to eliminate all competitive concerns in accordance with Article 14 of the Communiqué 2010/4 on Mergers and Acquisitions Requiring the Approval of the Board. As per paragraphs 18 and 19 of the Authority's Guidelines on Remedies that are Acceptable by the Turkish Competition Authority in Merger/Acquisition Transactions, the Court considered that the behavioral remedies may only be approved in cases that "behavioral remedies are capable of attaining a level of efficiency similar to that of structural remedies in eliminating competition problems and in cases where an equally effective structural remedy cannot be found". In light of this consideration, noting that all of the remedies proposed by the parties were behavioral in essence, the Court found that (i) the proposed behavioral remedies would not eliminate competitive concerns, (ii) no effective implementation and monitoring mechanism was adopted with respect to the remedy package, and (iii) the Board failed to provide adequate reasoning on how these remedies would address concerns on the creation/strengthening of dominant position and coordination effects stemming from the Transaction. Accordingly, the Court ruled that the remedy package would not be sufficient to address all concerns in the Transaction and ordered stay of execution of the Board's decision.[4]

The Court's stay of execution decision has been appealed before the 8th Administrative Chamber of Ankara Regional Administrative Court ("Regional Court"). The Regional Court noted that prior to the date of the Court's stay of execution decision Limar submitted a statement declaring that the parties decided to call off the Transaction due to a disagreement on commercial conditions. In this regard, the Regional Court held that the Court should have established whether (i) the Board has taken a new decision upon being informed of the discontinuation, and (ii) the prior approval decision on the acquisition of Mardaş was still valid. The Regional Court, therefore, annulled the Court's decision and referred the file back for a new decision to be rendered by the Court.[5] Upon annulment by the Regional Court, the Court has insisted on its decision and again ordered a stay of execution with the same reasoning and did not refer to any of the issues raised in the Regional Court's decision.[6]

As a final note, although the Court's first decision on behavioral remedies has been reversed due to a rather procedural matter (i.e., lack of subject matter of the regulatory approval), the Court's insistence of its decision and reasoning draws attention. The Court's assessment of the remedy package in both the reversed and the latter stay of execution decisions sheds some light and provides insights for future cases. We are yet to see how the Board's assessment of behavioral remedies would be affected by this decision.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2019. A link to the full Legal Insight Quarterly may be found here