On the GC Grapevine - Emerging Europe - Edition 1

Sezin Elçin Cengiz: “Sector inquiry of

the Turkish Competition Authority and its possible effects on the FMCG retail market” ..p. 23

Ed 1 Vol 2 2012

Weinhold Legal Coffee giants’ merger Weinhold Legal advised HDS Retail Czech Republic, 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 Heaven chain from its franchisor of the Costa Coffee brand, Whitbread Plc., a UK listed company.

HUNGARY White & Case Réczicza 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 Hungarian Cora hypermarkets, to GroupeAuchan SA, the French based retail company. The transaction, subject to regulatory approvals, is expected to close in the first half of 2012.

ROMANIA Bulboaca&Asociatii Debt & equity investment in healthcare companies in the Eastern Europe Bulboaca&Asociatii advised RBS Asset Management Limited in connection with an equity and debt investment in Gada, a UK holding company of healthcare business, supplying products and services to hospitals in Italy, Romania and Turkey in order to assist it in the making of certain tactical acquisitions of similar companies in the Eastern Europe.

Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

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Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

Ed 1 Vol 2 2012

Sector Inquiry of the Turkish Competition Authority and its Possible Effects on the FMCG Retail Market (Turkey)

by Sezin Elçin Cengiz,White&Case

The Turkish Competition Authority (“TCA”) initiated a comprehensive inquiry into the FMCG Retail Sector in 2010 in order to examine the dynamics of competition and discuss possible policy options for the market. The preliminary 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 retail sector in the years to come.

concentration levels in some regions and cities, 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 increase as a result of the institutionalization and transparency created by a growing number 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 suppliers 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 suppliers through various practices including late payments, conditions for access to shelves and requests for ungrounded discounts and supplemental 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 regulation 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 sector in Turkey is more liberal and encouraging for investments compared to many European countries.

The Turkish FMCG retail market has experienced 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 setting the conditions of trade with suppliers has From a Competition Law perspective, the reincreased, creating an imbalance of bargaining port admits that the current market structure power against suppliers. of FMCG retail is too premature to be intervened. As a matter of fact, the low level of conThese issues as well as discussions carried out at centration in the market allows for neither the the EU level prompted the TCA to undertake application of Article 7 of the Act on Proteca detailed analysis of the FMCG retail sector. tion of Competition (the “Act”), which prohibThrough this analysis, the TCA determined the its M&A activity that creates or strengthens a level of concentration in the Turkish FMCG re- dominant position in the market, nor Article tail market to be quite low compared to that 6 of the Act regarding abuse of dominant posipresent in European Countries; however, the tion. share of organized retail in FMCG is increasing both at national and regional levels. The However, parallel to the consolidation trend in

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

The first measure provides a differentiated implementation 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 sector. 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 transactions.

The second approach is the “Code of Conduct” system, the essence of which is the establishment of a Code of Conduct that would be supervised by an ombudsman, thereby allowing market players to self-regulate the market they operate in, with minimum outside intervention.

The final remedy option would require retailers 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 sector closely.

While competition law practitioners and economists 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 TCA’s approach to the FMCG sector and specifically which (if not all) of the three alternatives will be favored by the TCA.

We would like to thank those who contributed to this edition: Lenka Honsova Eva Skornickova Szabolcs Gall Otilia Petrescu Zeynep Derman Kucukonder Kveta Vojtova Michal Pravda Bogdan Bunrau Ileana Constantin Sezin Elรงin Cengiz If you would like to subscribe and receive a hard copy to this newsletter please register on our website here: http://www.legalisglobal.com/index.php/market-insight/the-gc-grapevine