Sezin Elin Cengiz:Sector inquiry of the Turkish Com-petition Authority and its possible effects on the FMCG retail mar-ket ..p. 23

Weinhold Legal

Coffee giants merger

Weinhold Legal advised HDS Retail Czech Re-public, a member of the Lagardere group, in connection with its acquisition of a 100% stake in Coffee Heaven United Ltd., operating in the Czech Republic a coffee chain under the brand Coffee Heaven. HDS Retail Czech Republic operates in the Czech Republic under Costa Coffee network of branded coffee outlets (and also runs a chain of retail stores under brand names Relay, Inmedio and a bakery chain Paul). HDS Retail took over the Coffee Heav-en chain from its franchisor of the Costa Coffee brand, Whitbread Plc., a UK listed company.

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White & Case Rczicza White & Case is advising Louis Delhaize on the sale of its Cora Hypermarkets in Hungary

White & Case is representing Louis Delhaize Group, the Belgium based food retail company, in connection with the sale of its seven Hungar-ian Cora hypermarkets, to GroupeAuchan SA, the French based retail company. The transac-tion, subject to regulatory approvals, is expect-ed to close in the first half of 2012.

ROMANIA

Bulboaca&Asociatii

Debt & equity investment in health-care companies in the Eastern Europe

Bulboaca&Asociatii advised RBS Asset Manage-ment Limited in connection with an equity and debt investment in Gada, a UK holding com-pany of healthcare business, supplying products and services to hospitals in Italy, Romania and Turkey in order to assist it in the making of cer-tain tactical acquisitions of similar companies in the Eastern Europe.

Ed 1 Vol 2 2012

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Ed 1 Vol 2 2012

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Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

The Turkish Competition Authority (TCA) initiated a comprehensive inquiry into the FMCG Retail Sector in 2010 in order to ex-amine the dynamics of competition and discuss possible policy options for the market. The pre-liminary findings of the Inquiry were published in February of 2011. The final report, which is expected to be published soon, will shed light on the competition policy towards FMCG re-tail sector in the years to come.

The Turkish FMCG retail market has experi-enced a structural transformation in the last decade. Organized retail has gradually but consistently gained market share at the expense of traditional channels. The benefits expected from economies of scope and economies of scale have led to a considerable number of concentrations in the sector. Parallel to these developments, the role of retail chains in set-ting the conditions of trade with suppliers has increased, creating an imbalance of bargaining power against suppliers.

These issues as well as discussions carried out at the EU level prompted the TCA to undertake a detailed analysis of the FMCG retail sector. Through this analysis, the TCA determined the level of concentration in the Turkish FMCG re-tail market to be quite low compared to that present in European Countries; however, the share of organized retail in FMCG is increas-ing both at national and regional levels. The

concentration levels in some regions and cit-ies, on the other hand, are well above Turkey averages. The main dynamics of this process are shaped by market entries by global retail chains via takeovers, which is expected to in-crease as a result of the institutionalization and transparency created by a growing num-ber of public offerings, as well as by so-called creeping acquisitions, meaning sequential small scope M&A transactions. The other set of findings involve the relations between suppli-ers and retail chains, specifically the creation, use and abuse of buyer power. In this respect the TCA determined that the buyer power of retailers is disproportionally reflected to sup-pliers through various practices including late payments, conditions for access to shelves and requests for ungrounded discounts and supple-mental payments.

All of these findings are to a certain extent likely to create various competition concerns at the vertical and horizontal levels of the FMCG retail sector which may or may not be solved by current Competition Law provisions. The political attempts for a sector specific regula-tion aiming to protect small- and medium-sized retailers from competition and unfair practices of organized retailers have failed. As of today, the regulatory environment for the FMCG sec-tor in Turkey is more liberal and encouraging for investments compared to many European countries.

From a Competition Law perspective, the re-port admits that the current market structure of FMCG retail is too premature to be inter-vened. As a matter of fact, the low level of con-centration in the market allows for neither the application of Article 7 of the Act on Protec-tion of Competition (the Act), which prohib-its M&A activity that creates or strengthens a dominant position in the market, nor Article 6 of the Act regarding abuse of dominant posi-tion.

However, parallel to the consolidation trend in

the market, it is expected that the competition problems arising from the buyer power of or-ganized retailers may increase. In this respect, the report offers three alternative approaches to remedy competition concerns, signaling the TCAs intention to play a proactive role in this process.

The first measure provides a differentiated im-plementation of the merger regulation to the FMCG retail sector. Discussions have centered on whether the turnover thresholds for M&A notification requirements may be decreased specifically for FMCG retail in order to capture a higher number of concentrations in the sec-tor. This is intended to prevent the legal validity of creeping acquisitions without the approval of the TCA, thereby allowing the TCA to keep a closer eye on the sector through M&A trans-actions.

The second approach is the Code of Conduct system, the essence of which is the establish-ment of a Code of Conduct that would be su-pervised by an ombudsman, thereby allowing market players to self-regulate the market they operate in, with minimum outside interven-tion.

The final remedy option would require retail-ers above a certain size to notify all contracts with their suppliers to the TCA on an annual basis. The expected benefits of this approach are transparency of contracts, elimination of unfair practices against suppliers over time and increased ability of the TCA to monitor the sec-tor closely.

While competition law practitioners and econ-omists continue to discuss the relevancy of these three measures for the Turkish market, sector players are anxiously awaiting the final report to see whether there will be a radical change in the TCAs approach to the FMCG sector and specifically which (if not all) of the three alternatives will be favored by the TCA.

Sector Inquiry of the Turkish Competition Authority and its Possible Effects on the FMCG Retail Market (Turkey)by Sezin Elin Cengiz, White&Case

We would like to thank those who contributed to this edi-tion:

Lenka Honsova

Eva Skornickova

Szabolcs Gall

Otilia Petrescu

Zeynep Derman Kucukonder

Kveta Vojtova

Michal Pravda

Bogdan Bunrau

Ileana Constantin

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