Detailed Guide on Mergers and Acquitions in Turkey
Mergers and acquisitions (M&A) in Turkey are regulated under the Turkish Commercial Code (TCC) and involve the combination of two or more companies into one entity. This process can be done in various forms, including mergers by absorption or mergers by consolidation, and it requires strict legal, financial, and procedural adherence.
Here’s a detailed overview of company M&A in Turkey, including the process, requirements, and legal framework:
I. Types of M&A in Turkey
There are two main types of M&A under the Turkish Commercial Code:
1. Merger by Absorption
In this type, one company (the acquiring company) absorbs another company (the target company), and the target company ceases to exist as a separate legal entity.
The assets, liabilities, and business operations of the target company are transferred to the acquiring company.
The shareholders of the target company receive shares in the acquiring company in exchange for their old shares.
2. Merger by Consolidation
This type of merger involves the creation of a completely new company formed by combining the assets and liabilities of two or more companies.
Both merging companies cease to exist, and the new entity is created as a separate legal entity with a new structure and governance.
The shareholders of the original companies receive shares in the new entity.
II. Legal Framework for M&A in Turkey
M&A in Turkey are primarily governed by the Turkish Commercial Code (TCC), Competition Law, and Capital Markets Law. The key legal provisions for company M&A include:
Turkish Commercial Code (TCC)
Articles 134 to 153 of the TCC specifically regulate M&A and demergers of companies.
The process requires approval by the General Assembly of each company involved in the merger and must be documented through a merger agreement.
Competition Law
The Turkish Competition Authority (Rekabet Kurumu) must review M&A if they meet certain thresholds related to market dominance or share. The authority may block or impose conditions on the merger if it finds that the transaction harms competition in the market.
Capital Markets Law
If the companies involved are public companies, the merger must comply with Capital Markets Board (SPK) regulations, which include approval for the issuance of shares, disclosure, and fair treatment of minority shareholders.
III. Steps for Merging Companies in Turkey
Step 1: Preparation and Feasibility Study
- Due Diligence: Companies must perform due diligence on each other’s financial, legal, and operational aspects to ensure the merger is feasible and beneficial.
- Merger Agreement: The companies must agree on the terms and conditions of the merger, which are detailed in the merger agreement. The agreement outlines:
- The type of merger (absorption or consolidation).
- The share exchange ratio.
- Rights of the shareholders and employees.
- Steps for transferring assets and liabilities.
Step 2: Shareholder Approval
- General Assembly: The General Assembly (shareholders’ meeting) of each company involved in the merger must approve the merger agreement. A simple majority vote is generally required, but certain changes (such as amendments to the Articles of Association) may require a supermajority.
Step 3: Submission to the Trade Registry
- The merger must be submitted for registration with the Trade Registry. This is where the merger’s legal effects are officially recognized.
- For mergers by absorption, the acquiring company must submit the merger documents, including the share exchange ratio, to the Trade Registry.
- For mergers by consolidation, the newly formed company must be registered, and the old companies are formally dissolved.
Step 4: Filing with the Competition Authority
- If the companies involved in the merger meet specific thresholds in terms of market share or financial size, they must file a merger notification with the Turkish Competition Authority (Rekabet Kurumu) for review and approval.
- The authority examines whether the merger creates or strengthens market dominance that could harm competition. If the authority finds the merger anti-competitive, it can block the transaction or impose conditions (e.g., asset divestitures).
Step 5: SPK Approval (if public companies are involved)
- If one or both of the companies are publicly traded, the merger must comply with the Capital Markets Board (SPK) regulations.
- The SPK will review the fairness of the share exchange ratio and ensure that the minority shareholders are protected.
Step 6: Implementation
- After approval by shareholders, the Trade Registry, and relevant authorities, the merger is implemented. This includes transferring assets and liabilities, amending Articles of Association, issuing new shares (if applicable), and updating public records.
- The merged company can then begin operating as a single entity.
IV. Conditions for M&A in Turkey
Financial Condition
- Companies must ensure they have sufficient financial resources to carry out the merger. This includes evaluating their debts, assets, and capital structure. In some cases, the merger may involve capital increases or restructuring of debt.
Share Exchange Ratio
- The share exchange ratio is a critical aspect of the merger. It determines how many shares of the acquiring company or new company will be issued in exchange for each share of the target company.
- The exchange ratio is usually based on the market value or financial performance of the companies involved, and it must be calculated by an independent expert if necessary.
Employee Rights
- The rights of employees (e.g., employment contracts, benefits) must be addressed in the merger agreement. The company should ensure that employees’ rights are protected and that any necessary transfers or restructuring are handled according to labor laws.
Protection of Minority Shareholders
- Minority shareholders must be fairly treated in the merger process. This may involve buyout rights, dissenters’ rights, or compensation mechanisms if the merger negatively impacts their interests.
V. Merger Costs and Timeframe
- Costs: M&A in Turkey involve several costs, including legal fees, valuation costs, due diligence, shareholder meetings, and possible fees for regulatory approvals (e.g., from the Competition Authority or SPK).
- Timeframe: The entire merger process in Turkey can take several months, depending on the complexity of the transaction, the type of companies involved, and the regulatory approvals needed. A typical merger could take anywhere from 3 to 6 months, but more complex M&A could take longer.
VI. Tax Implications of M&A in Turkey
M&A can have various tax implications for the companies involved. Some key points to consider:
- Tax-Free M&A: Under certain conditions, M&A may be eligible for tax exemptions. For example, a merger where the absorbing company acquires the target company’s assets and liabilities can be considered a tax-free transaction if it meets the requirements under Turkish tax law.
- Capital Gains Tax: If the shares of the target company are sold or exchanged, capital gains tax may apply. However, this may be deferred or exempted in certain merger transactions.
- Transfer Taxes: Some transactions, especially those involving real estate or intellectual property transfers, may be subject to transfer taxes.
- Loss Carryforward: In a merger, tax loss carryforwards from the target company may be transferred to the acquiring company, depending on the structure of the merger and Turkish tax regulations.
VII. Challenges in M&A
- Cultural Integration: Merging two companies often involves combining different corporate cultures, which can create challenges in terms of employee integration, leadership structures, and operational alignment.
- Regulatory Scrutiny: M&A, especially those involving large companies or firms in competitive industries, can be subject to intense scrutiny by regulators. Companies may face challenges in obtaining approval from the Competition Authority or SPK if the merger is seen as potentially harming competition.
Mergers and Acquisitions in Turkey are complex processes that require careful planning, legal compliance, and approval from various authorities, including the General Assembly, Competition Authority, and Capital Markets Board (for public companies). By adhering to the requirements set forth in the Turkish Commercial Code, companies can successfully merge and form more competitive, financially stronger entities. Legal and financial advisors are crucial in ensuring that all steps are followed properly and that the merger results in a favorable outcome for all parties involved. Please feel free to contact us for more information and further inquiries about our unique services. You can also subscribe to Tacirsoft Hukuk Bilgi Sistemi, that is Turkey’s only Corporate Law and Organized Industrial Zones Law database.
