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After years of being effectively stalled, the Romanian online gambling market has finally been unlocked and the wait for remote gambling operators has proved to be worthwhile. Thus, the long-awaited results of a tumultuous legislative process are now tangible in the form of decisions issued by the National Gambling Office (NGO) – which offers those organizers who meet its requirements the right to lawfully operate in Romania.

Although temporary, these official licenses are nevertheless a step forward in the country’s struggle to release the online gambling market from the “fence” regulations. As it stands, the licenses give operators the interim right to organize and operate remote gambling activities in Romania, while they continue with the process of applying for a full 10-year license. Initially valid only until December 31, 2015, the interim licenses will be extended to be valid for a period of one year from the date of granting, subject to compliance with legal provisions, so that the market can continue to function until the technical regulations are implemented and until the operators fulfill the conditions to obtain full licenses.

Romania’s connection with online gambling can be traced back to 2010, when the government passed Law no. 246/2010, amending the Government Emergency Ordinance No. 77/2009 for the organization and exploitation of games of chance, and removing the restriction from facilitating online gambling to reflect market reality. In 2013, after three years in which the regulations were on paper only – no licenses had been  issued as no regulatory body was in place – the Government created the National Gambling Office to oversee the country’s online gambling activity. 

The law establishes an amnesty for those operators that have carried out remote gambling activities in Romania, without holding a license and authorization issued by the Romanian authorities, subject to certain conditions being fulfilled.

Currently, according to the official website of the NGO, there are 16 operators who have obtained the interim right to organize and operate remote gambling activities in Romania, including such significant operators such as Betfair, PokerStars, 888, Sportingbet, and bet365 (the complete list can be viewed on the NGO’s official website).

In addition to issuing a “white” list, the NGO also publishes a “blacklist,” showing those operators who have operated online gambling entities without paying license and authorization fees, as well as other amounts owed, as well as operators that have cleared the past in Romania by paying the amnesty fee, but have chosen to stay out of the Romanian market for the future. Currently the NGO has blacklisted 147 operators.

Finally, the NGO also announces on its home page that “the participation of individuals (natural persons) on Romanian territory in remote gambling activities that have not been authorized by the NGO constitutes a criminal offence punishable with a fine ranging between RON 5.000 to RON 10.000” and warns such individuals that after the expiry of the amnesty period (90 calendar days from the date Law no. 124/2015 (which expired on September 10, 2015) became effective), “by banning the access to unauthorized platforms, there is a risk that the money deposited in these platforms can no longer be returned”.

While Romania is closer to a complete and effective online gambling legal framework, it remains to be seen how things will evolve, given the challenges the NGO has to face in a maturing environment. 

By Ana-Maria Baciu, Partner, and Alina Dumitru, Associate, Nestor Nestor Diculescu Kingston Petersen

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On August 5, 2015, CEE Legal Matters reported that RTPR Allen & Overy had advised the Advent International Corporation on the sale of its majority stake in Centrul Medical Unirea S.R.L. – the healthcare services provider conducting its business under the brand name “Regina Maria” – to the private equity fund Mid Europa Partners. The Enayati family sold their minority share in Centrul Medical Unirea as well, and were advised by NNDKP. Mid Europa Partners was advised by White & Case and Bondoc & Asociatii, with CMS advising Erste Bank – acting as the sole underwriter of the acquisition facility – on debt financing provided to Mid Europa Partners. The transaction, which remains subject to approval by the Romanian competition authority, is expected to close before the end of the year. We asked Costin Taracila, the “T” in RTPR Allen & Overy, some questions about this major deal.

C.T.: We have a long-standing relationship, Advent International being one of our very active private equity clients for some years. We advised them on several transactions in Romania, just to mention only the last one, the exit from Ceramica Iasi which was concluded last summer. Historically we acted for Advent on the acquisition of Centrul Medical Unirea back in 2010 and the further add-on of Euroclinic, and we were best placed to act for them on the exit from the same business. It’s a strong relationship based on trust.

C.T.: We were retained to advise on the entire process, from NDAs, vendor due diligence, data room guidance, SPA negotiations, signing, conditions precedent, and closing. The final result was not too different from the initially agreed scope of work in terms of the key areas. We were pleased to be retained for the full process, and Advent and its local team are transaction driven, so there were no surprises for either of us in terms of our expectations and how the process was eventually organized.

C.T.: The RTPR Allen & Overy team was led by me, and I was assisted by Alina Stavaru (Counsel) on negotiations and Roxana Ionescu (Senior Associate) on due diligence and transaction structuring. Other members of the team were Ana Eremia, Diana Dimitriu, Andrei Mihul, Laurentiu Tisescu, Raluca Deaconu, Adrian Cristea, and Monica Marian (Associates). On the international team, Hugh Owen from Allen & Overy Budapest advised on the English law aspects of the transaction, supported by Esther Lemmon in A&O London on the tax covenant.

C.T.: Hugh worked mainly on the share sale and purchase agreement, which was governed by English law and which contained provisions which, although typical for this kind of secondary buy-out, are still quite private-equity specific. He and I led the negotiations together on this. He also worked on the Warranty and Indemnity Insurance policy, which is an important element of more and more M&A transactions – it is a very specific document where prior experience is essential. There were other complex private-equity-specific elements which, for confidentiality reasons, we can’t mention here.

C.T.: The deal involved Advent selling approximately 80%, and the Enayati family selling approximately 20%, of the shares in Centrul Medical Unirea SRL. There was a partial rollover of management’s shares. The deal was a locked-box deal with regulatory conditions only. 

We walked hand in hand with our client from the inception of the exit until a successful signing and beyond. Given that we were involved in every single step of the process, this allowed us to have a complete overview and to be able to offer tailor-made advice combining the pure legal advice with all relevant business considerations. We like to think that we were more than a legal adviser; we were what we like to call “the trusted adviser” for our client. This was a competitive sale where all the advantages and disadvantages of different bids and bidders had to be taken into consideration before getting into negotiations. Proper vendor due diligence and preparation were key for the success of the deal, then once things heated up we brought all the key ingredients to the table: the due diligence team, the competition team, the Romanian and English law M&A team, and the English tax team. All for the benefit of a hands-on and very business-oriented client.

C.T.: The application for competition approval involves sections related to the purchaser and its group (this part was handled by Mid Europa’s legal advisors) and others with information about the target group, its services, and markets (handled by our team). In a competitive process such as this one, the part of the application that relates to the target group and which is the most consistent is prepared in parallel with the negotiations in order to smooth the application process. We think the approval by Romanian competition authority will be granted in the coming days, and we do not see any reasons for a delay, with the closing of the deal immediately after.

C.T.: There were challenges, of course, as in any deal of this type. For example, we ended up with the actual sale transaction being negotiated in parallel with a sophisticated management incentives plan which had to be agreed by the purchaser with the management of the target. We had to combine the experience of the Luxembourg, English, and Romanian teams in order to be able to advise the management of Regina Maria in parallel with the sale process. Other than that, the biggest challenge was to be able to negotiate and to deliver a ‘Rolls Royce’ service to our client for over 30 hours in a marathon, sleepless, negotiation session in Bucharest. 

C.T.: The ability to keep all the balls in the air throughout the various jurisdictions and work streams involved under time pressure, while at the same time keeping that level of mutual instant understanding and trust with our client which made those “May I have a separate word with my client” moments very rare. Also, we are very proud of the teamwork between our Romanian and international teams. We have known each other and worked together for many years now, and there is a mutual respect and understanding that enables us to work together very effectively. We also felt that we had a very good understanding of what the buyer was going through on their side, too. So (since we have done it ourselves countless times) we understood what they had to do, for example with the financing banks and the warranty and indemnity insurer, and because we understood these elements perfectly ourselves, it enabled us to ensure that our approach in negotiations was one that they could accept. We knew what issues they were facing as a private equity buyer, and we knew what they could and could not accept.

C.T.: The negotiations took place at our premises in Bucharest. Mid Europa was effectively given 24 hours’ exclusivity to get the deal signed, and after the deal team flew into Bucharest on Sunday, 2 August, the customary 30+ hour meeting ensued, with a signing on the Tuesday afternoon, 4 August. All the key players were in the room.

C.T.: We could not detail the relationship with Advent International on this deal without giving special praise to Emma Popa Radu and Raluca Nita (the Managing Director and a Director of Advent’s office in Romania, respectively), who were in charge of supervising this investment in Regina Maria as all as with the exit process, along with their Luxembourg and Boston teams, which offered all the needed support almost around the clock during the intense negotiations. Besides the in-depth and unique mix of strategic vision and understanding of legal, financial, and tax implications of all matters involved, they were always able to quickly turn around clear instructions focusing on the really important open points throughout the negotiations. And the ability to make business decisions almost on the spot made all the difference and allowed the negotiations of this deal to end with a successful signing within a short timeframe.

C.T.: It was definitely a deal between professionals. It is of paramount importance to have all teams “speaking the same language” when it comes to sophisticated matters requiring top law firms around the table. And this was certainly the case – it was good that all of us, as the top private equity law firms in the CEE region, were involved in this deal, enabling us to deal with complex and specific issues that firms without PE experience would have found difficult to get over the line in the same time frame.

C.T.: This is the largest Romanian transaction in healthcare in the last few years on the Romanian M&A market. This gives a very positive signal about the fact that in Romania there are very good businesses, and we encourage investors to look closer at Romania as an attractive market. Romania is a large market with enormous potential and still great opportunities for exceptional returns. We are committed to Romania, and we are pleased to see continued interest in the country from important investors like Mid Europa. 

We look forward to taking part in many more M&A opportunities like this in the near future.

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On September 7, 2015, the provisions of the new Romanian Fiscal Code were promulgated by the President of Romania, and they were published in the Official Gazette of Romania three days later. As a result, on January 1, 2016, Romania will have a new Fiscal Code for the first time since 2004, and the tax regime in the country will be significantly different for both local businesses and foreign investors alike. We reached out to Schoenherr Tax Bucharest Managing Director Theodor Artenie, Director Oana Manuceanu, and Director Mihaela Popescu for information about this important development.

Schoenherr: In the more than 10 years since it was first published, the Fiscal Code had undergone a significant number of changes making it very difficult to be read by taxpayers attempting to be compliant.

Apart from the fact that it looked like a disastrous patch-work, with hundreds of amendments that were tough to track, it also contained a number of provisions which were completely out of alignment with each other or, worse, with common business practices of Romanian companies. For example, relevant provisions from the profit tax legislation did not match provisions from the VAT legislation, some provisions of VAT legislation did not match those from the excise duty legislation, and so on. Another relevant example is related to the taxation of financial transactions, especially at the level of individual investors: the old Fiscal Code lagged behind the complex transactions and products currently being developed on the market, and as a result it became anachronistic and difficult to apply.

Therefore, with every passing year there was an ever-increasing need to clean up, re-arrange, re-draft, and re-align the provisions of this very important piece of legislation.

Schoenherr: Apart from the general overhaul of the format of the Fiscal Code, which included a new numbering of all the articles and a reshuffling of some existing provisions, there were also a number of amendments. These can be split into three main categories:

1) Those that will have a direct and immediate impact on the Romanian state budget. These include the reduction of some tax rates (e.g., the standard VAT rate will be reduced from 24% to 20% in 2016 and then to 19% in 2017, the excise duty rates for alcoholic beverages have been reduced, gasoline and diesel fuel taxes will be reduced in 2017, and the dividend tax will be reduced from 16% to 5% in 2017), the removal of others (for instance, the special construction tax will cease to exist in 2017) and the increase of the taxable base (such as a pension contribution for freelancers).

2) Those significantly changing the provisions regulating certain taxes. In particular, the property tax regime – especially those provisions applicable to the building tax – was almost completely reconsidered and rewritten, with new concepts and rules introduced to explicitly regulate the tax regime applicable to tax-transparent entities. Similarly, taxation rules applicable to joint-venture arrangements were significantly amended.

3) Those that aim at clarifying various aspects. This category includes a significant number of amendments which were either imposed by existing best practices or by various interactions between the Romanian Central Tax Authority and the business community.

Apart from the three categories listed above, one very important aspect of the new Fiscal Code (in our view) is that it introduces additional anti-abuse rules, including the notion of “abuse of rights” – the introduction of explicit provisions detailing the consequences of tax abusive practices, especially in the field of VAT, as well as the transposition of the anti-abuse rules from the EU Parent-Subsidiary Directive.

This particular set of amendments is in line with the recent approach of the Romanian Tax Authorities, who have increasingly focused on limiting tax abuse and tax evasion. Nonetheless, unfortunately, in the absence of a clear definition or clear guidelines defining “the abuse of rights,” we believe that these new provisions are likely to give rise to various forms of abuse from tax officers as well, considering past experiences when these matters were not treated with the required level of responsibility.

Schoenherr: As one might expect, the debates around some of the amendments in the first category mentioned above were rather abundant and somewhat fierce – around the VAT rate cut, for example.

We believe that the debates had an important political undertone mainly driven by the fast-approaching parliamentary elections and by the various factions’ desire to get a head start in the election campaign.

Apart from the political content of the debate, there were also a number of genuine concerns voiced by various institutions and experts about the reduction of the standard VAT rate, which is thought to have the highest impact on the public purse, and about other tax cuts such as the dividend tax and the removal of the special construction tax scheduled for 2017. The main points were the difficulty to predict if the collection of taxes will increase to such an extent that it will compensate for the loss resulting from the cut of the respective tax rates (especially VAT) and if the boost in consumption will be sufficiently vigorous to cover at least part of this loss. Additionally, one other topic that sparked the increased level of controversy around the reduction of the VAT rate was that, according to the National Bank of Romania and of the Romanian Fiscal Council, the measure is likely to also have negative macro-economic consequences (especially as regards inflation/deflation).

However, although there are areas in the new Fiscal Code that are far from reflecting a genuinely popular consensus (especially the increased taxation of active income and freelance activities, while the tax burden on passive income – such as dividends – will lower as of 2017), it is only fair to conclude that the new Fiscal Code is a step forward for the Romanian legislative framework.

Schoenherr: Without proclaiming to be the voice of the Romanian business community, we would venture to say that the new Fiscal Code was generally well received. One of the reasons we believe this to be true is that it was drafted in significant consultation with Romanian companies. It also promises a higher level of predictability in the fiscal environment, as it introduces clearer taxation rules and stricter deadlines for future amendments.

Of course the process was far from perfect and there remain a number of unresolved tax issues, which are still likely to cause headaches and frowns.

Schoenherr: We believe that the overall impact on foreign investments will be positive since the new Fiscal Code should be perceived as a step towards creating a more predictable tax environment in Romania.

Also, the various tax cuts, combined with existing relief mechanisms (e.g., the participation exemption regime) and other new mechanisms (e.g., a VAT reverse charge for the sale of real-estate and for electronic goods), is likely to create a competitive economic environment with new opportunities for foreign investors looking to expand or consolidate their presence in Romania.

Schoenherr: The main debate was around the reduction of the standard VAT rate (as already mentioned above), which was initially suggested to be from 24% to 19%. After several rounds of talks, it was agreed by all parties to reduce the VAT rate gradually – to 20% in 2016 and to 19% in 2017.

Another concession made for the adoption of the new Fiscal Code was to postpone the dividend tax cut – from the current 16% to 5% – until 2017.

Last, but not least, another “hot potato” was the controversial tax on special constructions which was first introduced in 2014 and which generated an uproar in the Romanian business community, as it was perceived as a tax on investments. This “out of nowhere” tax – which was literally introduced overnight – generated some 1.5 billion RON in revenue for the state budget. The initial proposal was to have it removed in its entirety on January 1, 2016, but following negotiations, it has been agreed to keep it for one more year, until 2017.

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Romanian legal market has maintained its “up and coming” status in the past 12 months. According to a press release from the National Bank of Romania, foreign direct investment in Romania increased by 39%, reaching EUR 1.66 billion in the first 6 months of 2015. This increase has been reflected in a significant number of transactions in agriculture, healthcare, banking, real estate, FCMG, energy and natural resources, construction, IT, and infrastructure, either pending or successfully completed. And there is more good news – we are seeing an increasing number of foreign investors investing for the first time in Romania or returning to Romania after a considerable number of years abroad. The appetite for investment in Romania is back, including for investment funds attracting money from Asia and the Middle East.

Under the EU Cohesion Policy, Romania has been allocated EUR 23 billion – approximately EUR 9.5 billion of which is dedicated to the Large Infrastructure Operational Program for Romania and is to be invested in transport, environmental, and energy projects. The amount will increase to EUR 11.8 billion based on national co-financing, and we expect infrastructure and energy projects to be the main focus of investment in the next year. Likewise, investment funds are looking for opportunities to invest in transportation and infrastructure-related businesses like logistic parks and companies active in construction. 

Concomitantly with the increase in investments and transactions, we have seen an an increased willingness by Romanian authorities to tackle corruption, tax evasion, and money laundering in an effort to reduce the black and grey market and to boost the real economy and the revenues of the State budget. This initiative has targeted private businessmen and most importantly private business entities, irrespective of whether they have done business with the Romanian State or not. The new Criminal Code that entered into force in February 2014 and other related laws and regulations contain corruption-related provisions addressing both public and private sector corruption as well as transnational corruption, and Romanian prosecutors are increasingly focused on imposing corporate criminal liability on private business entities.

With a record number of criminal investigations against Romanian politicians – including at least 3 European level cases and several arrests of high profile members of the Romanian Parliament – it has indeed been an extremely “hot” year, and Romanian attorneys are paying closer attention to compliance and regulatory issues than before as their clients need to ensure that they are taking appropriate steps to comply with relevant laws and regulations and remain safe from any reputational risks and corporate scandals. 

The Romanian High Court of Cassation and Justice recently stated that a legal entity is criminally liable for acts against the financial interests of the European Union. The case under review dealt with the submission of false statements by the vice-president of a company that led to obtaining financial assistance through the European Agricultural Guarantee Fund. In another pending criminal case, a legal entity is being investigated for tax evasion in relation to assets that it allegedly undervalued in order to declare and pay lower taxes.

To this end, there have been several law firms that have increased their activity in regulatory & compliance matters and have advised a number of Romanian companies to undertake a thorough review of their internal rules and regulations on regulatory & compliance issues, starting with the adoption of – or, as the case may be, the updating of its understanding of – the Corporate Code of Ethics and Internal Regulations and the implementation of training programs for its management and employees to ensure that internal rules and regulations are strictly enforced. We estimate that this practice will increase exponentially in the next years.

The recent focus on compliance does not deal only with corruption and tax evasion, but also covers a wide spectrum of best practices in antitrust and state aid matters, intellectual property and IT, employment, consumer protection, and money laundering, as we are seeing an increased monitoring of the Romanian market by the Competition Council, The National Authority for Data Protection, The National Authority for Protection of Consumers, and the Labor Inspection Authority, to name a few of the Romanian authorities in charge with compliance supervision. 

The efforts of the Romanian authorities to tackle corruption and tax evasions have not only increased the Regulatory & Compliance work of Romanian attorneys but also started to play an important role in various due diligence reviews when Romanian businesses, entities, or assets are being acquired. While in the past such due diligence investigations were of no concern or were limited in scope, nowadays a thorough review is performed on transactions with State entities and where there are pending or potential investigations against the target, its shareholders, and other companies within the same group. Hence attorneys will pay more attention to transaction documents in terms of representations and warranties of the sellers in terms of regulatory & compliance issues.

By Dragos Vilau, Partner, Vilau | Associates

This Article was originally published in Issue 2.5. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Szabo Kelemen & Partners has advised Magna International on Hungarian aspects of the sale of its interiors operations to Grupo Antolin – a leading global supplier of automotive interior systems – for a total purchase price of approximately USD 525 million. Magna International used Sidley Austin as global advisor and Hengeler Mueller acted as the European Coordinator. Deloite advised Grupo Antolin.

The transaction included 36 manufacturing operations and approximately 12,000 employees located in Europe, North America, and Asia. Full year 2014 total sales for the operations included in the agreement were approximately USD 2.4 billion. A Magna press release stated that neither Magna’s seating business nor two joint ventures in China were included in the transaction.

Szabo Kelemen & Partners Managing Partner Tamas Szabo and Attorney-at-Law Judit Suto advised the Magna on Hungarian aspects of the sale.

Avellum Partners acted as Ukrainian counsel for the Ministry of Finance of Ukraine on the restructuring of thirteen sovereign and sovereign-guaranteed Eurobonds with an outstanding principal of approximately USD 15 billion.

According to the firm, “Settlement of the exchange offer involved the restructuring of approximately USD 15 billion of Ukraine’s external debt, achieves a 20% debt reduction for Ukraine (approximately USD 3 billion) and allowed Ukraine to avoid paying any of the previously scheduled USD 8.5 billion of principal falling due under such bonds through the end of 2018. This successful debt operation is a key part of the implementation of Ukraine’s IMF-supported EFF Program approved in March 2015 and represents the outcome of seven months of intensive work of all Ukrainian authorities, coordinated by the Ministry of Finance, to convince Ukraine’s bondholders of the necessity of a debt restructuring.”

Glib Bondar, Head of the Finance and Restructuring Practice of Avellum Partners, who led the firm’s team on the matter, commented: “We have the honor to work on this remarkable and ground-breaking transaction with many legal challenges which had to be resolved in the middle of international an domestic political turbulences. We believe that this restructuring will become a cornerstone for Ukraine’s future financial stability and economic recovery.”  

In addition to Bondar, the team consisted of Lead Associates Artem Shyrkozhukhov and Taras Dmukhovskyy, with tax support from Associate Vadim Medvedev, and assistance from lawyers Taras Stadniichuk, Anastasiya Voronova, Pavlo Shevchenko, and Orest Franchuk.

I. Introduction

Merger remedies have an important role in the assessment of problematic concentrations which also create certain efficiencies.

Since 2014, the number of the transactions that have been made subject to Phase II review by the Turkish Competition Board has shown increase. In connection with this trend, it is also observed that remedies are implemented to remove competition law concerns raised by some of these mergers. Accordingly, the importance of conditional clearances and the remedies has been strengthening under Turkish merger control regime. 

This article first presents the mainstream principles, design and implementation of merger remedies and then looks into recent application of remedies by the Turkish Competition Board (“Board”) in Phase II review of concentrations.¹ Particularly Bekaert/Pirelli² is significant where the Board granted an approval conditioned on the effective use of behavioral remedies. Recent decisions of the Board signal that remedies are likely to be used more frequently in the future as constructive tools in removing the anticompetitive effects of a concentration and utilizing its efficiencies. 

Remedies proposed to eliminate the competitive concerns resulting from the concentration are generally classified as “structural” and “behavioral”. The Turkish competition law regime classifies remedies in this line, as well.³ A structural remedy relates to the concentration’s structure which generally requires the divestiture of a certain business whereas a behavioral remedy concerns the behavior of the parties in the market.⁴ That said the Board’s recent approach to remedies attests that such categorization is in fact irrelevant for the purposes of remedy mechanism. Whether structural or behavioral, the proposed remedy must be assessed in terms of its efficiency in preventing the creation or strengthening of a dominant position and removing the competition law concerns.⁵ 

Structural remedies, by their nature, are permanent and do not require monitoring measures unlike behavioral remedies.⁶ In this respect, behavioral remedies could be burdensome and generate direct and indirect costs.⁷ Furthermore, the complexity and execution of behavioral remedies for a long time may endanger achieving the intended effect of the remedy or create loopholes through which the undertaking may evade the purpose of the remedy.⁸ 

However, behavioral remedies may be useful as well in cases where a structural remedy is not feasible or practical.⁹ If, for example, divestiture is impossible or ineffective, as it may be in vertical concentrations, a behavioral remedy which grants open access of competitors to infrastructure (access remedies)¹⁰ may be employed independently. Additionally, behavioral remedies are reversible and flexible which makes them preferable in certain cases where the market is changing rapidly, such as technology markets.¹¹ 

The Board, alike the Commission, prioritizes the structural remedies over behavioral remedies and prefers the remedy proposals to include structural remedies as long as the conditions allow it and it is feasible.¹² In the past, the Board accepted behavioral remedies generally as a support to structural remedies due to their said drawbacks, or for minor competition law problems.¹³ Recent decisions of the Board where behavioral remedies are heavily used¹⁴ or found sufficient to remove the competition concerns¹⁵ indicate that the Board further recognizes advantages of this tool. 

II. The Guidelines on Remedies in Mergers and Acquisitions Transactions and the Board’s Decisional Practice 

Remedies find their legal basis under Article 14 of Communiqué No. 2010/4 on the Mergers and Acquisitions Subject to the Board’s Approval (“Communiqué”)¹⁶ which provides that the parties to a concentration that raises competition law concerns may propose remedies in order to remove such concerns. The Board, in its Guidelines on the Remedies that are Acceptable by Turkish Competition Authority in Merger and Acquisition Transactions (“Guidelines”)¹⁷ further provides guidance on the mainstream principles and requirements concerning the acceptable remedies. The Guidelines, alike the Commission Notice on remedies acceptable Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004 (“Notice”),¹⁸ explicitly underline the Board’s preference for divestitures which present their results in the short term and do not require monitoring¹⁹ in contrast to behavioral remedies which are exceptional and secondary to structural remedies.²⁰ 

The Guidelines provide that the parties have the discretion whether to provide any remedy or not, and that the Board may let the parties revise the proposed remedies in case it does not find the proposed remedy sufficient to remove the competition law concerns.²¹ Since the parties have the most detailed information in order for the Board to analyze the feasibility and sufficiency of the proposed remedies, the parties are responsible to provide all necessary information required for the assessment, and show that the proposed remedies are sufficient to remove the competition law concerns.²² 

The Guidelines list several fundamental conditions for remedies to be accepted.²³ The proposed remedies must be based on legal and economic principles, protecting the efficiencies arising from the transaction to the maximum extent, and the level of competition prior to the concentration. Importantly, the remedies must protect the competition itself, not the competitors. The conditions of a remedy must be explicit and feasible.

Case Law on Remedies

The above argued preference of the Board toward structural remedies is also apparent from its decisions. In consistence with the principles set forth in the Guidelines, the Board welcomes structural remedies, and supplements them with behavioral remedies in its decisions. Therefore, the Board’s strict stance in favour of imposing structural remedies has evolved to removing the identified competition problem through accepting certain behavioral remedies. 

In AFM/Mars,²⁴ the notified transaction concerned the acquisition of joint control over two movie theater operators, AFM and Mars, by Esas Holding and Actera. Considering that the targets were two of the largest movie theater operators in Turkey, the Board found the transaction problematic and took the case into Phase II review. Upon the commitments regarding the divestiture of certain assets (i.e. the divestiture of nine movie theater businesses and the closure of three movie theaters) and a behavioral remedy to notify the Board for a term of five years of average ticket prices, to allow the Board to monitor the market, the Board granted a conditional clearance to the transaction. During the judicial review, 13th Chamber of the Council of State annulled the decision of the Board on the grounds that the remedies accepted are not sufficient to remove the competition law concerns; yet 13th Chamber’s decision was also reversed later, rendering the Board’s decision lawful. The decision is an example of a case where a behavioral remedy was used to supplement and support the divestiture of certain assets. 

On the other hand, sometimes, even structural remedies may be found inadequate. In Beta Marina/Setur,²⁵ the Board did not even grant a conditional clearance to the transaction which concerned the acquisition of the shares of Beta Marina and Pendik Turizm Yat Marina by Setur. The Board found that the notified transaction results in the creation of a dominant undertaking and therefore significantly impedes competition in the market. Even though Setur offered to exclude the acquisition of the operating rights of Kalamis Marina, the Board decided that such commitment is not aimed at or sufficient to remove the competition law concerns raised by the transaction. 

The Board granted approvals to transactions which did not pose significant competition law concerns with behavioral remedies in Phase I. In THY-Do&Co/Usas,²⁶ the proposed transaction concerned the acquisition of the assets used in in-flight offerings and the personnel of Uçak Servisleri (“Usas”) by THY-Do&Co, a parent company of which is THY, a major Turkish airline. Finding that Usas is in a leader position with a high market share in in-flight offerings market and that the largest customer in the market is THY, realizing the 50% of the purchases in the market, the Board was concerned regarding the potential customer foreclosure effects of the transaction. Moreover, the Board received several complaints and petitions asking the Board not to grant a clearance for the transaction on the grounds that the transaction will foreclose the market and restrict the access of other airlines to in-flight offerings market. The Board asserted that the transaction may indeed impede the competition in the market for passenger transportation via airline by raising rivals’ costs. Considering the anti-competitive effects of the transaction, the Board granted a conditional clearance for the transaction, subject to THY-Do&Co’s commitment to abstain from engaging in exclusionary conduct in favor of THY. Even though the remedies accepted by the Board in the said case consisted of pure behavioral remedies (i.e. abstaining from engaging in exclusionary conduct), the decision came with dissenting opinions of the Board members. In the dissenting opinions, it is emphasized that non-discrimination is an obligation on all undertakings, and that the decision does not impose any monitoring mechanism on the purchases from Usas. Given that THY-Do&Co was a decision of 2006, the Board following the Commission²⁷ drew its approach towards behavioral remedies much more clearly with the Guidelines in 2011. 

In another decision with regard to THY,²⁸ the transaction concerned the establishment of a joint venture between THY and Havaalanlari Yer Hizmetleri (“Havas”) which provides ground services for airline companies in several airports. The joint venture agreement set forth that THY and TGS (the joint venture) will enter into a contract for the supply of ground services for a term of 5 years with a possibility of a renewal for another 5 years. As THY have a significant market power in the market for airline transportation (downstream market) and is the largest customer in the market, the Board was concerned that THY may raise its rivals’ costs by refusing to supply and foreclose the market and therefore took the transaction into Phase II review. The parties, in order to remove the competition law concerns of the Board, amended the said agreement and provided fair dealing clauses which provided that THY may enter into supply agreements with other ground service providers at the end of the first 5 year term. The Board granted an approval to the transaction on the condition that THY will notify the Board in case THY’s market share in an airport exceeds 40% and the term of the ground service agreement to be executed for the related airport is longer than 3 years. 

The Board’s decision regarding the acquisition of Bagimsiz Gazeteciler Yayincilik and Kemer Yayincilik ve Gazetecilik (Vatan Gazetesi) by Dogan Gazetecilik²⁹ provides another example in terms of the application of behavioral remedies. Considering that the transaction raises competition law concerns, the Board conditioned the approval of the transaction on certain structural and behavioral remedies. Accordingly, it was decided that the loyalty and trademark rights of Vatan Gazatesi to be transferred to a third party. In addition, significantly, finding that an executive of Vatan Journal Group will also be acting as an executive of Dogan Gazatecilik, the Board decided for the removal of the said executive from the office of Vatan Journal Group in order to establish its independence.

The Board’s approach explained above is in line with the Commission’s as well since it is also reluctant in accepting solely behavioral remedies in a concentration which may be considered to raise competition law concerns. In the Notice, the Commission underlines this point of view by also stating that “the divestiture commitments are the best way to eliminate competition law concerns.”³⁰ The Commission, in GE/Honeywell³¹ and Tetra Laval/Sidel³² decisions, rejected the behavioral remedies proposed by the parties. In these transactions, the parties, in order to remove the competition law concerns of the Commission offered to abstain from certain commercial behaviors, such as bundling products. The grounds for the Commission’s rejections were that the commitments consisted of only promises and required excessive monitoring to ensure the resolution of competitive concerns.³³ However the Court of Justice of the European Union, in its decision of Commission v. Tetra Laval BV³⁴ changed its approach towards remedies by stating that the Commission must consider any proposed commitment when determining the likelihood of anti-competitive effects of the concentration. Accordingly, the Commission accepted behavioral remedies, specifically “conduct” commitments in several cases where the proposed commitments were deemed as sufficient to remove competition law concerns. In Wegener/PCM/JV,³⁵ for example, the Commission accepted the commitments of the parties to the transaction regarding selling advertising space separately and ring-fencing the joint venture.³⁶ Moreover, in Kali und Salz/MdK/Treuhand,³⁷ the proposed commitment was to sever links with the main competitor and the Commission found the commitment appropriate since such links with the competitor were the reason of competition law concerns.³⁸ 

III. Recent Decisions of the Board Concerning Behavioral Remedies

Even though the Board approached to behavioral remedies reluctantly, two recent decisions of the Board suggest that the behavioral remedies are becoming more important. Significantly, in Bekaert/Pirelli where ELIG acted for Bekaert, the Board upon its Phase II review concluded that behavioral remedies are on its own sufficient to address the competition law problems.³⁹ In Lesaffre/Dosu Maya,⁴⁰ the Board accepted a series of behavioral remedies. 

Bekaert/Pirelli

Bekaert/Pirelli is significant since the Board found the behavioral remedies proposed by Bekaert, concerning uninterrupted supply commitment to local customers of the parties, sufficient to resolve the anticompetitive effects of the transaction. The transaction concerned Bekaert’s acquisition of steel tire cord business of Pirelli Tyre (“Pirelli”). The Board found that the transaction would have anticompetitive consequences since Bekaert would be in a dominant position post-transaction and there would be insufficient competitive pressure on Bekaert. Accordingly, the Board took the transaction to Phase II investigation whereas both the Commission and the Brazilian Competition Authority approved the acquisition by Bekaert. However, in its decision, the Board explained that, unlike the EU and Brazil, there are fewer undertakings active in the relevant product market in Turkey (for example, Asian manufacturers were not active in Turkey). Accordingly, the Board decided that the transaction would confer the transaction parties with a considerable degree of market power and significantly impede effective competition in the relevant product markets. 

In order to resolve the anticompetitive concerns of the Board, Bekaert proposed entering into supply agreements with the existing competitors for 3 years. These agreements proposed in the scope of the commitment by Bekaert did not include any purchase requirement and thus allowed the customers to buy from other suppliers. Additionally, Bekaert proposed to provide supplementary customer service support. Moreover, with its commitment, Bekaert undertook to supply all amount demanded by its customers. The Board, considering the proposed commitments, found that Bekaert would not be able to impose prices on the customer during the commitments since customers would be capable of switching to other suppliers. In addition, Bekaert would not be able to limit its supply since it commits to provide the customers with the entire amount demanded. Ultimately, the Board found that the commitments proposed by Bekaert are transparent and foreseeable and the said commitments for a term of 3 years is sufficient to create a competitive pressure on Bekaert also considering existence of the Asian or Belarusian potential competitors abroad. Therefore, the Board found that the proposed commitments of Bekaert are sustainable, apprehensible and sufficient to resolve the anticompetitive effects of the transaction and granted a conditional approval to the transaction. 

As seen above, the remedies proposed by Bekaert consisted of pure behavioral commitments and yet were found sufficient by the Board to remove the anticompetitive concerns arising from the transaction. In its assessment of the proposed commitments, the Board did not consider the nature of the remedies but its sufficiency and effectiveness in resolving the anticompetitive effects. Consequently the case may be considered as a benchmark in terms of the application of behavioral remedies and it also approves that the behavioral remedies may have significant roles in conditional clearances.⁴¹ 

Lesaffre/Dosu Maya

In Lesaffre/Dosu Maya, the Board assessed the proposed transaction regarding the acquisition of sole control over Dosu Mayacilik (“Dosu Maya”) by Lesaffre et Compaigne (“Lesaffre”). Dosu Maya was one of the leading yeast producers in Turkey whereas Lesaffre was also active in the same market. The Board found that the concentration has its effects in the markets of dry and fresh yeast. However, the Board decided that the concentration did not raise any competition law concerns in the market for dry yeast, it found that, upon the consummation of the transaction, the combined undertaking would hold a joint dominant position with Pak Maya (another player in the market) and this would impede and distort the competition in the market. 

Even though the parties proposed commitments during Phase I, the Board did not find these commitments sufficient and took the case into Phase II review. During the in-depth investigation, the parties amended their commitments which included the divestiture of certain assets, executing a distributorship agreement with a potential buyer for a minimum period of 3 years, protecting the fresh yeast brands of Dosu Maya, expanding the geographical presence of Dosu Maya in Turkey by keeping the prices at a certain level and removing the territorial exclusivity and the supplier exclusivity clauses from the agreement between Özmaya and its dealers, conducting competition compliance programs, and not acquiring Akmaya. The Board found these commitments as sufficient and effective to remove the competition law concerns arising from the transaction and granted a conditional approval to the transaction. 

Commitments proposed by the parties in this case consisted of both structural and behavioral remedies. The Board, for the first time with Lesaffre/Dosu Maya decision, accepted the commitment of implementing a compliance program for three years to support the remedy package. It found that structural remedies supported by a series of behavioral remedies were sufficient to resolve the competition law concerns. As is seen, the Board may request from the parties to revise their proposed commitments if the initial propositions are found inadequate. 

IV. Conclusions

Whether classified as structural or behavioral, remedies are important for merger control regimes since they are the tools in removing the competitive concerns raised by a transaction and utilizing the efficiencies of such transactions. 

Even though competition authorities generally consider structural remedies superior to the behavioral remedies and approach to granting sole behavioral remedies with reluctance, behavioral remedies are also useful and constructive mechanisms in resolving the competition law concerns arising out of the transaction. 

In light of the recent decisions of the Board, from the ongoing trend over the last year, it would not be assertive to state that the Board’s reluctance towards behavioral remedies is moderating and it is likely that the behavioral remedies will be considered and accepted more frequently in the future. Therefore, the evolving practice under Turkish merger control regime as regards remedies is expected to yield efficiency gains. 

(First published in Mondaq in December 2015)

1. see THY/OPET/Mobil Oil decision numbered 14-24/482-213 and dated 16 July 2014, Bekaert/Pirelli decision numbered 15-04/52-25 and dated January 22, 2015, and AFM/Mars decision numbered 11-57/1473-539 and dated November 17, 2011.
2. see Bekaert/Pirelli decision numbered 15-04/52-25 and dated January 22, 2015.
3. Guidelines on the Remedies that are Acceptable by Turkish Competition Authority in Merger and Acquisition Transactions, para. 18.
4. id. Also see Allison Jones, Brenda Sufrin, EU Competition Law Text, Cases and Materials, Fifth Edition, p. 1247.
5. Alistair Lindsay, Alison Berridge, The EU Merger Regulation: Substantive Issues, Fourth Edition, p. 633.
6. Allison Jones, Brenda Sufrin, EU Competition Law Text, Cases and Materials, Fifth Edition, p. 1248.
7. The direct costs of behavioral remedies may arise from designing, monitoring and enforcing the remedy whereas behavioral remedies may also create indirect costs which may accrue in case of a distortion in the market caused by the lengthy enforcement or evasion of the obligations of the remedy. See Ariel Ezrachi, Under (and Over) Prescribing of Behavioral Remedies, The University of Oxford, Centre for Competition Law and Policy, Working Paper (L) 13/05, p. 3.
8. Ariel Ezrachi, Under (and Over) Prescribing of Behavioral Remedies, The University of Oxford, Centre for Competition Law and Policy, Working Paper (L) 13/05, p. 2-3.
9. id. at  p. 2.
10. see Turk Telekomünikasyon/Invitel decision numbered 10-59/1195-451 and dated September 16, 2010.
11. Ariel Ezrachi, Under (and Over) Prescribing of Behavioral Remedies, The University of Oxford, Centre for Competition Law and Policy, Working Paper (L) 13/05,p.3.
12. id. at, p. 2.
13. OECD, DAF/COMP (2011)13, p. 201. see Board’s THY-Do&Co/Usas decision numbered 06-96/1225-370 and dated December 29, 2006.
14. see Lesaffre/Dosu Maya decision numbered 14-52/903-411 and dated December 15, 2014.
15. see Bekaert/Pirelli decision numbered 15-04/52-25 and dated January 22, 2015.
16. see the Communiqué available at http://www.rekabet.gov.tr/File/?path=ROOT/1/Documents/S%C4%B1k%C3%A7a+Sorulan+Soru/teblig83.pdf.
17. see the Guidelines available at http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fKilavuz%2fkilavuz15.pdf.
18. see the Notice available at http://ec.europa.eu/competition/mergers/legislation/files_remedies/remedies_notice_en.pdf. 
19. Para. 18 of the Guidelines and para. 15-17 of the Notice.
20. Para. 19 of the Guidelines.
21. id. at para. 8, see Lesaffre/Dosu Maya decision numbered 14-52/903-411 and dated December 15, 2014.
22. Para. 9 of the Guidelines.
23. id. at para. 12.
24. see AFM/Mars decision numbered 11-57/1473-539 and dated November 17, 2011.
25. see Beta Marina/Setur decision numbered 15-29/421-118 and dated July 09, 2015.
26. See THY-Do&Co/Usas decision numbered 06-96/1225-370 and dated December 29, 2006.
27. Para. 69 of the Notice.
28. see THY/Havas decision numbered 09-40/986-248 and dated August 27, 2009.
29. see Vatan Gazetesi decision numbered 08.23/237-75 and dated March 3, 2008.
30. Para. 17 of the Notice 
31. see Case No. COMP/M. 2220 (2004/134/EC).
32. see Case No. COMP/M. 2416, annulled on appeal Case T-5/02, [2002] ECR II-4381, aff’d Case C-12/03 P, [2005] ECR 1-987.
33. Allison Jones, Brenda Sufrin, EU Competition Law Text, Cases and Materials, Fifth Edition, p. 1250.
34. see Commission v. Tetra Laval BV. (C-12/03P) [2005] E.C.R. I-987.
35. see Commission’s case COMP/M.3817 (2005/C 131/03).
36. Alistair Lindsay, Alison Berridge, The EU Merger Regulation: Substantive Issues, Fourth Edition, p. 636
37. see Case M. 308. [1994] OJ L186/30.
38. Allison Jones, Brenda Sufrin, EU Competition Law Text, Cases and Materials, Fifth Edition, p. 1250.
39. see Bekaert/Pirelli decision numbered 15-04/52-25 and dated January 22, 2015. 
40. see Lesaffre/Dosu Maya decision numbered 14-52/903-411 and dated December 15, 2014.
41. Ariel Ezrachi, Under (and Over) Prescribing of Behavioral Remedies, The University of Oxford, Centre for Competition Law and Policy, Working Paper (L) 13/05, p. 3.

By Gonenc Gurkaynak, Managing Partner, Zeynep Ortaç, Associate, Su Simsek, Associate, Göktug Can Burul , Associate, ELIG, Attorneys-at-Law

Valiunas Ellex, working together with Olswang and the German law firm Schweizer, has advised Hubert Burda Media on its investment into a company operating the Vinted Internet platform.

A consortium of Hubert Burda Media and US private equity and venture capital funds Accel Partners and Insight Venture Partners invested a total of USD 27 million into Vinted, raising the total company valuation to USD 150 million.

Vinted.com is a platform to swap, sell, and/or give away second-hand clothing. The system operates in 8 countries, including the USA, Germany, and France, listing 22.3 million items and reaching 11 million members.

Hubert Burda Media, with its origins in the printing and magazine publishing industries, currently owns a portfolio of around 500 media products worldwide. It reached revenues of EUR 2.456 billion in 2014.

Valiunas Ellex was represented by Partner Ramunas Petravicius, Associate Partner Robertas Ciocys, and Senior Associate Ruta Besusparyte.