In recent years, merger and acquisitions have received a great deal
of attention in Turkey. Turkey broke the record for the highest number
of M&A deals out of central and south-eastern European countries in
2011, with the estimated value of the 264 M&A deals reaching $15
billion (of which privatisation constituted $1 billion). One hundred and
thirty-eight of the deals were executed between a local and a foreign
company. The majority of foreign buyers focused on the healthcare,
financial services, manufacturing, food and beverage, e-commerce and
energy sectors. Additionally, transactions involving small and
medium-sized businesses have also increased.
The top four M&A transactions with the highest deal values in
2011, which accounted for 42% of the total volume, were the acquisition
of the Turkish energy company Genel Enerji by British Vallares, the
acquisition of the spirit producer Mey ki by Diageo, the acquisition of
the hospital chain Acibadem by Malaysian IHH, and the privatisation of
the Istanbul ferry services company.
In 2012, M&A deals in Turkey are expected to reach $20 billion.
Foreign investment into Turkish companies is projected to reach $12
billion, while large-scale privatisations will bring in about $8
billion. Energy, retail, internet retail sales, food and banking will
lead Turkey's M&A transactions this year.
Foreign buyers in transactions are generally treated equally to
domestic ones. There are, however, several foreign ownership
restrictions in various sectors such as media, broadcasting, airline and
It should be noted that there is no exclusive code regulating M&A
in its all aspects. Articles governing M&A can be found in several
codes, such as the Turkish Commercial Code, the Code of Obligations, the
Capital Markets Law, the Law on the Protection of Competition, and
relevant tax laws. Moreover, the new Turkish Commercial Code, which aims
to change the future of Turkish commercial law, will be effective as of
July 1 2012. Furthermore, there is also a new Code of Obligations,
effective as of the same date.
There are two alternative means of making an acquisition: share
transfer and asset transfer. In an asset transfer, the Code of
Obligations regulates the liabilities of the buyer and the seller. In
light of the Code, the buyer and the seller will be liable jointly for
two years following the closing of such transfer. The new Code of
Obligations states that the two-year liability will only start in the
event that the seller notifies or the transfer is published. In the
occurrence of share transfer or asset transfer, the approval of the
Turkish Competition Board is necessary in order to complete such
transfers and gain level validity to the same, in the event that a
certain level of threshold requirement is reached.
An important regulation in the area of M&A is Communiqué No
2010/4 on Mergers & Acquisitions Subject to the Approval of the
Competition Board (effective as of January 1 2011) which introduces many
new criteria and fundamental changes to the merger-control regime.
Although the previous communiqué was mainly adopted from EU Regulation
4064/89, the wording was not clearly drafted. The requirement of change
in control was understood to be only in relation to acquisitions.
According to the Communiqué, the authorisation of the Competition
Board is required for the transaction to be legally valid, in the event
that the total turnovers of the transaction in Turkey exceed TL100
million ($55.8 million), and the turnovers of at least two of the
transacting parties each exceed TL30 million, or the global turnover of
one of the transacting parties exceeds TL500 million, and at least one
of the remaining transacting parties has a turnover in Turkey exceeding
TL5 million. Pursuant to the Communiqué, a transaction is deemed to
closed on the date when change of control occurs.
Another important change in the Communiqué is that the approval
decision of the Competition Board will be deemed as covering the
directly related and necessary extend of the restraints in competition
brought by the concentration. With this change, the parties of the
transaction may engage in self-assessment and the Competition Board will
not have to devote a separate part of its decision to the ancillary
status of all restraints brought with transaction.
As mentioned in the general preamble of the new Commercial Code,
companies' merger is set forth in detail pursuant to the EU Directive
regarding mergers (78/855). The clauses governing mergers are drafted by
making use of Swiss Federal Code Regarding Merger, Demerger, Change of
Legal Form and Assignment of Asset of Switzerland (dated October 30
2003), despite the fact that the new Commercial Code and said Swiss Code
range across many topics.
Under the new Commercial Code, companies can be merged in two ways:
acquisition of a company by another company, technically known as a
merger by acquisition, or union of two companies within the structure of
a new company, technically called a merger by formation of a new
company. No other type of merger is recognised. In the application of
the new Commercial Code, the company accepting the merger is referred to
as the transferee and the company that is joined is referred to as the
assignee. The transferor company adheres to the structure of transferee
company and loses its status as a legal entity following completion of
the transactions. In the case of a merger in the form of a new
foundation, companies form a new commercial company by uniting, and
consequently dissolve. Thus, while a new legal entity exists, the legal
entities of the merging companies disappear by cancellation from the
Trade Registry, if merger is completed.
According to the related clauses, merger occurs when the shares of
the transferee are acquired by the shareholders of assignee on the basis
of an exchange ratio in return for the wealth of assignee. The merger
contract can include cash payment for withdrawal.
It should be noted that the new Turkish Commercial Code ended the
requirement which involves participation of the same type for the
companies in the merger. According to the new Code, for a merger to be
valid, joint-stock companies can be merged with joint-stock companies,
cooperatives, unlimited liability companies or commandite
companies, if transacting as the transferee. On the other hand, personal
companies can be merged with personal companies, stock companies or
cooperatives, if transacting as the assignee.
In the case of a dissolution, a company can be joined to merger
provided that distribution of its wealth is not started and that it will
be the assignee. The existence of the dissolution shall be verified by
the report of a transaction auditor which confirms the case in question
as the report is submitted to the Trade Registry with which the
transferee's headquarters are registered.
A company which has lost half of the sum of its capital and statutory
reserves due to damages, or whose liabilities exceed its assets, may
merge with another company provided that the latter is in possession of
freely disposable equity sufficient to cover the capital loss or, if
necessary, to remedy the state of excess of liabilities over assets. The
existence of the above mentioned condition must be confirmed by the
report of a transaction auditor, as the report is submitted to the Trade
Registry with which the transferee's headquarters are registered.
In terms of protection of partnership shares and rights, the
shareholders of the assignee have the right to make a claim on the
shares and rights in the transferee at a value matching their existing
The parties may take into account the value of the assets of
companies participating in the merger, the allocation while assessing
the said right to make a claim. An equalisation benefit can be provided
while determining the change in partnership shares, providing that the
partnership shares assigned to the shareholders of the transferee do not
exceed one-tenth of their actual value.
Shareholders with non-voting shares in the assignee are granted
non-voting shares or shares with voting rights of the same value. Equal
rights at the assignee or a reasonable consideration are given in
exchange for preferential rights in the existing shares of the
The capital increase of the transferee depends on the type of the
merger. In the case of a merger by acquisition, the transferee is
obliged to increase its capital to the level necessary to protect the
rights of the shareholders of the assignee. The provisions regarding
public offerings of new shares in publicly held joint-stock companies
and regulations concerning contribution of capital in kind do not apply
in the merger, except for the provisions regarding the registration with
the Capital Markets Board. Where a merger by formation of a new company
occurs, articles of the new Commercial Code and Cooperatives Law No
1163 (dated April 24 1969) apply to the formation of the new company,
excluding their provisions regarding contribution of capital in kind and
the minimum number of shareholders.
With regard to the interim balance sheet, in the event that more than
six months passes between the date the merger contract was signed and
the date of the balance sheet, or if significant changes have occurred
in the assets of companies participating in the merger since the last
balance sheet has been prepared, the companies participating in the
merger must prepare an interim balance sheet.
Companies participating in the merger must hold a merger contract,
merger report and balance sheet. In a merger by formation of a new
company, the articles of association of the new company must also be
attached to the merger report.
The merger contract must be in written form, signed by the management
of companies participating in the merger, and approved by their general
assemblies. The merger contract must contain:
- trade names, legal status, headquarters of companies participating
in the merger; in the case of a merger by formation of a new company,
type, trade name and headquarters of the new company;
- transfer rates of company shares, and, if provided for, equalisation
amount; explanations regarding shares and rights of shareholders of the
assignee in the transferee;
- rights granted to the holders of privileged shares, non-voting shares and profit-sharing certificates by the transferee;
- the method for transfer of shares;
- the date on which the shares acquired through the merger gained the
right to the profits, which is shown on the balance sheet of the
transferee or newly established company, and all aspects related to such
- cash payment for withdrawals, if necessary;
- the date on which the transactions and activities of the assignee is considered as performed on the account of the transferee;
- details of any special benefits granted to managing bodies and managing partners; and
- the names of the shareholders with unlimited liability, if applicable.
As mentioned above, the companies participating in the merger must
also prepare a merger report, individually or jointly. This report must
explain the legal and economic grounds of the purpose and results of the
merger. It must also include the merger contract; the exchange ratio of
company shares, and, if stipulated, equalisation payment; partnership
rights granted to the shareholders of the assignee companies in the
transferee; the amount of cash payment for withdrawals and reasons for
such payment instead of the company shares and partnership rights, if
applicable; aspects regarding the valuation of shares in terms of
determining the exchange ratio; and the amount of increase that will be
made by the transferee, if necessary.
The report should provide information regarding the additional
payments and other personal performance liabilities and personal
responsibilities designated to the shareholders of the assignee due to
merger, if stipulated, liabilities imposed on the shareholders due to
the new type, in the mergers of companies of different types.
It should also describe the impact of the merger on the employees of
companies participating in the merger, and, if possible, the content of a
social plan, as well as the impact of the merger on the creditors of
companies participating in the merger.
Additionally, in the report should be approvals obtained from
relevant authorities, if required. Articles of association of the new
company must be attached to the merger report, in a merger by formation
of a new company.
Small-sized companies may decide not to have the merger report prepared, in the case of an approval by all shareholders.
Companies participating in the merger must have a transaction auditor
audit the merger contract, merger report and the balance sheet subject
to the merger. Companies participating in the merger must provide the
transaction auditor with all relevant information and documents.
The transaction auditor should inspect and state his or her opinion
on three main points in the report. The first is whether the capital
increase stipulated to be made by the transferee is sufficient to
protect the rights of the shareholders of the assignee. The secondly
point is whether the exchange ratio and cash payment for withdrawals are
fair. Thirdly, he or she must state the calculation method of the
exchange ratio and whether the method applied is fair, determined by
comparison with the calculation method of at least three different
generally accepted methods.
In order to obtain a merger resolution, the managing body must
present the merger contract to the general assembly. The approval of the
merger contract at the general assembly is subject to certain quorums.
Joint-stock companies require approval by three-quarters of the votes
present at the general assembly, provided that those votes represent the
majority of the basic or issued capital. Limited liability companies
require approval by three-quarters of the votes of all shareholders,
provided that they hold at least three-quarters of the shares
representing the capital.
A simple route
The new Commercial Code innovates a simplified merger process for
capital stock companies. In the event that the transferee capital stock
company holds all shares with voting right of the assignee capital stock
company, or if a company or a real person or groups of persons
connected due to any legal reason or agreement are holding all shares
with voting right in capital stock companies participating in the
merger, capital stock companies can merge in accordance with the
simplified conditions. If the transferee capital stock company holds at
least 90% of, but not all, shares with voting rights, the merger can
take place under simplified conditions.
Capital stock companies participating in the merger and complying
with the terms described above, must include in the merger contract:
trade names, legal status, headquarters of companies participating in
the merger; in the case of a merger by formation of a new company, type,
trade name and headquarters of the new company; cash payment for
withdrawals, if necessary; and names of the shareholders with unlimited
liability, if necessary.
Such capital stock companies are not required to draw up the merger
report and to provide the right to audit the merger contract in and the
right to inspect regulated, nor can they submit the merger contract for
the approval of the general assembly.
In the event that the merger contract sets forth a cash payment for
withdrawals, approval by 90% of shareholders with voting right is
required if the assignee is a personal company, or of all voting rights
for a capital stock company. If a change regarding the scope of activity
of the assignee occurs, the merger contract must also be approved with
the quorum required to amend the articles of association.
In terms of protecting the creditors, in the event that the creditors
of the participating company in the merger make a claim within three
months following the date on which the merger becomes legally effective,
the transferee secures their receivables. Companies participating in
the merger must notify the creditors of their rights through an
announcement in the Turkish Trade Registry Gazette and in three national
newspapers with a circulation of more than 50,000 three times at
intervals of seven days. Capital stock companies must also publish the
announcement on their websites. If the transaction auditor confirms that
there are no known or expected claims which cannot be paid by the
available assets of the companies participating in the merger, an
announcement is not required. If the transferee proves by a transaction
auditor report that the receivable is not under risk due to the merger,
the liability of the transferee to provide security is abolished.
The responsibilities of shareholders who were liable for the debts of
the assignee before the merger continue after the merger, under the
condition that these debts were incurred before the announcement of the
merger resolution or the reasons causing these debts have occurred
before this date.
Claims arising from the debts of the assignee regarding the personal
responsibility of shareholders are barred by the statute of limitation
after three years from the announcement date of the merger resolution.
If the claim becomes due after the announcement date, the period of
limitation begins as of the maturity date. This restriction does not
extend to the responsibilities of shareholders who are personally liable
for debts of the transferee.
|Tevfik Adnan Gür
Gür Law Firm
Sümbül Sokak No: 61
34330 Levent – Istanbul
T: +90 212 325 9020
Tevfik Adnan Gür founded Gür Law Firm in 1984. He started his career as a shipping lawyer and has a particular and deep knowledge of maritime law, insurance law and shipping finance. Moreover, he has a substantial international practice in commercial and international litigation. His experience also includes providing full service in the joint venture, merge and acquisition phases of Turkish and foreign companies, and legal services to various holdings and medium-sized companies on their contracts with their partners, employment, joint ventures and the financial support they are getting. He has also facilitated the joint ventures of many companies in the energy field. In the real estate sector, he has worked as a consultant to many companies from the establishment phase to their transactions. He was recently appointed as an arbitrator in one of the important salvage cases in which Turkish law was applied. He is also appointed to act as co-arbitrator in ICC arbitrations.
F: +90 212 325 9023
Gür is a member of the Istanbul Bar Association, Turkish American Business Association, Turkish Industry and Business Association, London Maritime Arbitration Association, British Chamber of Commerce of Turkey, Italian Chamber of Commerce of Turkey, and German Chamber of Commerce of Turkey. He is a board member of the Turkish Golf Federation.
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