A joint venture ("JV") set up between competing entities is subject to evaluation under the merger control regime as well as rules governing horizontal cooperation agreements. The Turkish Competition Authority's (the "TCA") analysis depends heavily on the nature and function of the JV, the relationship of the parties to the JV, as well as the dynamics of the market.

For a JV transaction to qualify for a merger control analysis the JV must have a fully functional nature. Overall, a full functionality assessment requires examination of whether the JV is independent from its parent companies in operational respects [with its own management body and sufficient resources, including finance, staff and assets (tangible and intangible) in the relevant market] and whether the JV is planned to operate on a lasting basis.

Generally speaking, setting up a JV between competing entities may be argued to contradict with the independency requirement since in practice the parent competitor entities would be likely to affect the operational activities of the JV. Against this background, concerns related to access to, and exchange of, competitively sensitive information, formation of parallel business strategies and coordination via the established JV arise, and the transaction may be evaluated by the TCA as a horizontal cooperation agreement.

TCA's recent decision on meal card/voucher operators is a reminder of the importance of paying extra attention when setting up JVs between competitors

The investigation launched against the meal card/voucher operators in 2018 caught a so-called "fully functional" JV set up between two operators and concluded with the imposition of administrative fines on the relevant entities as they failed to meet the "full functionality" requirement and used the JV for their anti-competitive business via the horizontal cooperation established through the JV .

By way of some background information, in 2001 two leading meal card/voucher operators in Turkey (namely Sodexo and Edenred) notified the TCA in relation to formation of a JV in order to provide smart card infrastructure services. In its notification, the parties assessed that the JV would not raise any anti-competitive concerns based on the following key arguments:

  • The JV would function solely for efficient and secure registration of accounts of current customers;
  • The JV would be regarded to be in a different market when compared to the market that the competitor parent companies operate in Turkey;
  • The JV would be set up in a manner to cater to the needs of any players in the market.

..and the TCA cleared the transaction.

However, the recent investigation proved the above listed arguments erroneous as it was found that in practice the JV served only the parent undertakings and did not serve any other players in the market. The practices of the JV did not match the practices o f a "fully functional JV" subject to a merger control assessment – making analysis of the JV under horizontal cooperation agreements even more important for the overall competition analysis.

Sticking by the rules – throughout the process!

The assessment in the investigation continued by considering the arrangement between Sodexo and Edenred via the JV they had set up as a horizontal cooperation agreement. Accordingly, the TCA assessed whether the arrangement could benefit from the exemption mechanism provided for certain competition-restricting agreements and decided that this was not possible based on the following grounds:

  • The JV serves to align the costs of the competitors as the information collated by the JV concerns operational employee costs, which represents one of the main inputs of meal card/voucher operators and such information is accessible to both parties;
  • The costs of the JV are passed on by the competitor parent undertakings to the customers of the relevant parent undertakings;
  • The parent undertakings communicate the services they will be offering to their customers via the JV and the services are mainly subject to the approval of both parties (indeed the agreements entered into by the competitor parent undertakings were not separate until 2006);
  • The above listed behaviors are practiced by the two most longstanding and largest meal card/voucher operators (with a total market share exceeding 50%) in a market made up of only five players.

The TCA's assessment shows the importance of making a correct analysis when setting up any kind of arrangement between competitors and keeping an eye on the arrangement while it lasts.

So, what are the key takeaways from the decision?

The decision is an important reminder of the points to consider when setting up a JV between competing entities: Think twice when setting up a JV with your competitor, make sure you stick by the rules as long as you are partners and think again even if you are considering a simple change in the nature and activities of the JV or else you may be subject to an administrative fine and the JV may be rendered null and void.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.