Unscrambling the Eggs

Last week Council of State (CoS) has accepted the request for a stay of execution of the TCA’s AFM/MARS decision. The judgement of the CoS, which stopped the execution of TCA’s decision, was about the acquisition of the majority shares of AFM by MARS, as well as the acquisition of 50% of the shares of Spark Entertainment Limited, which holds control over MARS, by Esas Holding A.Ş., which holds sole control over AFM. Both AFM and MARS are companies which mainly run movie theaters all over the country.

Our story had begun on 06.12.2010 when the parties applied to the TCA for the transaction. After evaluating the acquisition, the TCA decided to take the application to a detailed final examination phase. The TCA’s concern was that the acquisition may cause high market shares in some specific geographical markets hence ticket prices could increase.

During the final examination phase, parties came up with commitments depending on the Communiqué no 2010/4 (secondary legislation covering imposition of commitments).  According to the commitments of the undertakings, 10 theaters would be divested and 2 theaters would be shut down by the parties after the merger within the time period and in line the methods approved by the Competition Board. Besides that, average ticket prices for each theater and the changes in these prices would be notified to the Authority by the end of January every year for 5 years. The Competition Board, arguably, accepted those commitments (despite the opposing view of the rapporteurs. Rapporteurs claim that the commitments brought upon wouldn’t solve the problem and MARS will gain a dominant position) and allowed for the acquisition. MARS has successfully fulfilled the commitments and sold 10 theaters and shut down 2 of them. We could end the story here as “and they lived happily ever after” but for the CoS’s judgment of stay of execution.

The case was taken to the CoS’ 13th Department with an appeal request. In Turkish jurisdiction, the CoS is allowed to rule an interim decision to stay of execution, if there is possible unrecoverable results and a frank illegality,  before giving a final judgement on a case and perusing the TCA’s decision, the CoS did so.

Analysing the case, the CoS begins with the high market share that is consisted by the acquisition and points out that the AFM and MARS’ combined market share exceeds their rivals’s share by far. Furthermore CoS, referring to EU Guidelines, states that the HHI level and delta generated by the acquisition are far beyond the certain thresholds. Later on, accepting an analysis solely based on the market share and HHI data set wouldn’t be enough; the CoS carries its analysis on considering structure of the relevant market, potential competition in the market, entry barriers and effects of the acquisition on vertically related markets. Finally the CoS concludes that:

  • There are high barriers to entry,
  • Figures which occurs after the commitments doesn’t point out to a competitive market structure,
  • There is an absence of robust rivals within the market which may create a competitive pressure,
  • Within the vertical markets, acquisition will create an unbalanced buying power,
  • Theaters that subject to commitments are relatively small and even if they are bought buy the biggest rival wholly, it will only have a size smaller than a quarter of AFM/MARS’, a fact which didn’t taken into account by the TCA,
  • Commitments will decrease the market share relatively but won’t be able to frustrate the alleged dominant position created by the acquisition.

Thus the commitment package is not sufficient to avoid competitive concerns that occurred and Board’s decision doesn’t comply with the law.

After the CoS’s ruling now the situation is indecipherable and ball is on the TCA’s court. Pursuant to the law, the TCA must comply with the CoS’ ruling within the 30 days. The question is how?

Will the TCA only deliver the CoS’ ruling to parties and step back or show a roadmap? Since there isn’t any given certain time limit for complying in the ruling of the CoS should the TCA specify a time limit? Should the TCA start an investigation if MARS doesn’t comply within the given time limit? What if MARS and AFM comes up with another commitment package, should the TCA wait for the final decision of the CoS or can the TCA accept the new commitments without waiting for it?

And the most important question is that is it possible to return to pre-acquisition state? Is it possible to (as it is said in Turkish) unsqueeze a toothpaste or is it possible to unscramble the eggs? According to the second law of thermodynamics it is not. But as we know within the court room, administrative law precedes laws of psychics.

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