PRACTICE AREAS

Mergers and Acquisitions

An In-depth Guide to Mergers and Acquisitions Law in Turkey

Turkey, a vibrant market and business hub, exhibits a dynamic legal environment for mergers and acquisitions (M&A). The country attracts significant international investors, thanks to its strategic location and competitive economy. This article provides an extensive overview of the M&A laws and regulations applicable in Turkey, emphasizing its evolving nature and the opportunities it brings along.

1. Understanding Mergers and Acquisitions

M&A is a strategic move, often depicting the consolidation or division of companies to foster rapid business growth. A merger involves the combination of two or more companies into a single business entity, while an acquisition refers to one company buying another. The acquisition usually involves a larger company absorbing a smaller one.

1.1. The Turkish Commercial Code Perspective

The Turkish Commercial Code (TCC) defines mergers as the establishment of a new commercial company by uniting two or more companies or incorporating one or more companies into another. According to the TCC, companies can merge in two ways:

• Merger by acquisition: One company acquires another, resulting in the dissolution of the latter and absorption by the former.

• Merger by formation of a new company: Two companies unite to form a new entity, leading to the dissolution of the original companies.

1.2. The Concept of Control

Control in an M&A transaction refers to the ability to exercise decisive influence over an entity, either directly or indirectly. This control can be established through rights, agreements, or other means and can be either de facto or de jure.

2. Regulatory Framework

Several laws and regulations govern M&A activities in Turkey. The TCC primarily regulates these activities, but other critical legislations include Turkish tax laws, the Law on the Protection of Competition, and Capital Market legislations.

2.1. Turkish Commercial Law

Under the TCC, a merger requires the existence of at least two commercial companies. At least one company will be transferred to another, along with all its rights and obligations. The partners of the dissolved company become partners of the new or transferee company.

2.2. Turkish Capital Market Legislation

The Capital Markets Communique on the Principles Regarding Merger Proceedings sets forth the principles observed in merger proceedings. It ensures that the financial statements of merging corporations align with the Capital Markets Board regulations.

2.3. Turkish Competition Legislation

Certain M&A activities require the approval of the Competition Board. The Merger Communique is the primary legal instrument assessing merger matters in Turkey, defining the types of mergers and acquisitions subject to the Competition Board's review and approval.

2.4. Tax Regulations

M&A activities are subject to corporate tax under the Law on the Corporate Tax and other tax laws. Principally, mergers are subject to corporate tax since revenue arising from such transactions is prominent.

3. M&A Activities: Procedures and Documentation

The documentation of an M&A transaction often begins with a letter of intent, followed by a due diligence process. After due diligence, parties may draft a definitive agreement, popularly known as a "merger agreement", "share purchase agreement", or "asset purchase agreement", depending on the transaction's structure.

3.1. Due Diligence

Due diligence is a critical step in an M&A transaction. It involves a detailed analysis of the target's operations, such as assets, customers, and human resources. It helps reevaluate the acquirer's initial assessment of the target's value, leaving no room for future concerns or problems.

3.2. Merger Agreement

The merger agreement, merger report, and required financial statements must be submitted for review 30 days before the General Assembly Meetings held at the companies' headquarters. The agreement must be approved, and a merger decision must be adopted in the General Assemblies of the companies involved in the merger.

3.3. Registration and Implementation

Once the merger decisions are adopted, they must be registered with the relevant Trade Registry along with the other application documents. These decisions are announced in the Trade Registry Gazette. The merger takes effect with the registration of the merger decisions with the Trade Registry.

4. Simplified ( "Facilitated") Merger

The TCC recognizes a simplified or facilitated merger only for mergers of stock companies, easing the obligation to provide documentation and granting rights to the shareholders.

5. Protection of Rights in M&A Activities

Turkish law contains provisions for the protection of certain vulnerable third parties in M&A transactions, including creditors and employees. It also outlines the liability and responsibility of shareholders after the M&A.

5.1. Protection of Creditors

The legislator attached importance to the protection of creditors in the merger of companies. The absorbing company is required to guarantee the receivables of the creditors of the companies involved in the merger if these creditors make such a demand within three months starting from the date when the merger comes into effect.

5.2. Protection of Employees

According to the Turkish Code of Obligations, in the event of a transfer of a workplace, the employment contracts are also transferred to the transferor with all of its rights and obligations, provided that the employee does not object to this transfer.

5.3. Liability and Responsibility of Shareholders

The shareholders responsible for the debt of the transferred company before the merger have a liability for the same after the merger. This personal liability is subject to a statute of limitations of three years starting from the date of the announcement of the merger.

6. Notifiable Transactions

The Turkish Competition Authority requires notification of certain transactions. Concentrations resulting in a change of control on a lasting basis are subject to the Board's approval, provided they exceed the applicable thresholds.

7. Turkish Competition Authority

The Turkish Competition Authority is the national competition authority for enforcing the Law on the Protection of Competition No. 4054 in Turkey. The Board, as the competent body of the Authority, is responsible for reviewing and resolving merger control filings.

8. Exceptions and Special Regulations

While the competition legislation provides no special regulation applicable to foreign investments, special restrictions exist on foreign investments in legislation such as media and banking.

9. M&A Transactions in Specific Sectors

Certain sectors, such as banking, exhibit special regulations for M&A transactions. For instance, the Banking Law provides that provisions of the Competition Law shall not apply if the sectorial share of the total assets of the banks subject to merger or acquisition does not exceed 20 per cent.

10. Conclusion

Mergers and acquisitions are subject to the principle of universal succession. The company, with all its assets and liabilities, is automatically transferred to the transferee company or newly established company without any further action. Therefore, it is crucial to receive expert advice from legal professionals before, during, and after conducting M&A procedures.

FAQs

Q1: What is the difference between a merger and an acquisition as per the Turkish Commercial Code (TCC)?

A merger involves the establishment of a new commercial company by uniting two or more companies or incorporating one or more companies into another. On the other hand, an acquisition refers to one company buying another, resulting in the dissolution of the latter and absorption by the former.

Q2: What is the role of the Turkish Competition Authority in M&A transactions?

The Turkish Competition Authority is responsible for enforcing the Law on the Protection of Competition No. 4054 in Turkey. The Board, as the competent body of the Authority, is responsible for reviewing and resolving merger control filings.

Q3: Are there any special regulations for M&A transactions in specific sectors in Turkey?

Yes, certain sectors, such as banking, exhibit special regulations for M&A transactions. For instance, the Banking Law provides that provisions of the Competition Law shall not apply if the sectorial share of the total assets of the banks subject to merger or acquisition does not exceed 20 per cent.

Q4: What is the principle of universal succession in the context of M&A?

The principle of universal succession refers to the automatic transfer of all assets and liabilities of a company to the transferee company or newly established company without any further action as a result of a merger or acquisition.

Q5: What is the importance of due diligence in an M&A transaction?

Due diligence involves a detailed analysis of the target's operations, such as assets, customers, and human resources. It helps reevaluate the acquirer's initial assessment of the target's value, leaving no room for future concerns or problems.

Q6: What is a simplified or facilitated merger?

A simplified or facilitated merger is a provision recognized by the Turkish Commercial Code (TCC) only for mergers of stock companies. It eases the obligation to provide documentation and granting rights to the shareholders.