İnternet sitemizde yer alan yayınlar, düşünce yazıları niteliğinde olup yazarların ele aldıkları konu hakkındaki bireysel görüşlerini yansıtmaktadır; düşünce ve ifade özgürlüğüne inanan bir Büro olarak her türlü fikre saygı ve dile getirilmelerinden memnuniyet duyuyoruz. Sitemizdeki yazı ve makalelerde yer alan bilgileri spesifik bir hukuki uyuşmazlığa uygulamadan önce mutlaka bir Avukata danışmanızı tavsiye ederiz.
BRIEF OVERVIEW OF MERGERS AND ACQUISITIONS UNDER TURKISH LAW*
*Av. Sultan GÜMÜŞ
The rules that regulate mergers and acquisitions (hereinafter “M&A”) change from country to country. In Turkey, there are many rules and regulations which govern the subject of M&A. The main body of rules which regulate the subject can be found in the Turkish Commercial Code numbered 6102 (hereinafter “TCC”). Other applicable rules include the Turkish tax laws, the Law on the Protection of Competition numbered 4054, and Capital Market legislations.
In this article we will give brief information regarding M&A as per TCC. However, it is important to note that as there are other legal provisions under Turkish Law applicable to M&A procedures, it is important to receive expert advice from legal professionals before, during and after conducting M&A procedures.
2. TYPES OF M&A
Mergers and Acquisitions is a technical term used to define the consolidation of companies. When two companies are combined to form a single unit, it is known as merger, while an acquisition refers to the purchase of company by another which means that no new company is formed, but one company is absorbed into another. Simply stated the two terms can be differentiated thusly; merger is the combination of two companies to form one, while acquisition is one company taken over by the other.
However, according to the terminology of TCC; mergers are defined as the establishment of a new commercial company through uniting of two or more commercial companies with each other or joining of one or more commercial companies to another commercial company.Pursuant to the TCC, companies can be merged in two ways: “merger by acquisition” and “merger by formation of a new company”. “Merger by acquisition is the acquisition of a company by another company. Within merger by acquisition, the transferee company has to increase the capital to protect the rights of the shareholders of the transferred company. It is mandatory to increase the capital in the transferring company. “Merger by formation of a new company” is the union of two companies under a new company. The company accepting the merger is called “transferee” and the company that is joined is called “assignee”.
There are two alternative means of acquisition: share transfer and asset transfer. In both cases, the completion of the transfers is subject to the approval of the Competition Board in the event that the thresholds described under the Competition legislation are reached.
3. M&A OF DIFFERENT TYPES OF COMPANIES
Article 124 of TCC lists commercial companies under Turkish Law as joint stock company, limited liability company, limited liability partnership (commandite company), general partnership (collective company) and collectives. The article then divides companies into two main groups: Stock Companies and Private Proprietorships. A Stock Company may be a joint stock company, limited liability company or commandite company divided into shares. Private Proprietorships consists of a sole proprietorships, limited liability partnership (commandite company) or general partnership (collective company). The TCC examines mergers and specifies the conditions under which companies may be merged with others according to the type of the companies involved in the merger. According to Article 137 of the Turkish Commercial Code;
• Stock Companies may be merged with a) Stock Companies, b) Cooperatives and c) Collective or Cooperative Companies on the condition that the company is a transferred company.
• Private Proprietorships may be merged with a) Private Proprietorships, b) Stock Companies on the condition that the Private Proprietorships is an acquired company and c) Cooperative Companies on the condition that the Private Proprietorships is acquired.
• Cooperatives may be merged with a) Cooperatives, b) Stock Companies and c) Private Proprietorships on the condition that the Cooperative Company is a transferred company.
In addition, it is possible for a company in liquidation or a company that has lost its capital or is submerged in debt to participate in the merger.
There should be at least two commercial companies before the merger. At least one commercial company will be transferred to another commercial company together with its rights and obligations (active and passive assets). Dissolving a company’spartners will become the partners of the newly established or transferee company. As a result of the transfer, at least one company in case of an establishment of a new company and at least two companies in case of an acquisition will be dissolved. As a whole, all the businesses and assets of the dissolving company/ies with their all the rights and obligations will also be transferred to the transferee or to the new company established. Therefore, as a result of the M&A at least two commercial companies will merge to become a single commercial company.
4. M&A PROCEDURES
The documentation of an M&A transaction often begins with a letter of intent. The letter of intent generally does not bind the parties to commit to a transaction, but may bind the parties to confidentiality and exclusivity obligations so that the transaction can be considered through a due diligence process. The legal review process begins after the parties determine the structure to be created with the letter of intent.
The process of due diligence begins as soon as the offer has been accepted by the buyout company. This makes a reevaluation of the acquirer’s initial assessment of the target’s value by conducting a detailed analysis of the target’s operations such as assets, customers, human resources and more. Due diligence is a concrete step that leaves no room for future concerns or problems. After due diligence is complete, the parties may proceed to draw up a definitive agreement, known as a "merger agreement", "share purchase agreement" or "asset purchase agreement" depending on the structure of the transaction.
The merger agreement, merger report and also the required financial statements (year-end annual financial statements, annual reports and if necessary, interim balance sheets for the last 3 years) must be submitted to the review of all parties whose interests are affected by the merger alongside with the shareholders, within 30 days prior to the General Assembly Meetings to be held at headquarters of the companies. This invitation to the review the above-mentioned merger related documents must be published in the Trade Registry Gazette and also on the companies' websites (if the companies are under the obligation to report such issues in their website as per TCC Article 1524).
The merger agreement must be approved and a merger decision must be adopted in the General Assemblies of the companies involved in the merger. Once the merger decisions are adopted at the General Assemblies of both companies involved in merger, such decisions must be registered with the relevant Trade Registry along with the other application documents. These decisions are announced in the Trade Registry Gazette.
As the final stage, shareholders perform their debts arising from signing the contracts.The merger takes effect with the registration of the merger decisions with the Trade Registry. According to TCC Article 136/4, with this registration, all assets and liabilities of the merging company are automatically transferred to the absorbing company and the merging company is automatically terminated and the transferred company’s legal personality ends with the merger and is deleted from the trade registry gazette.
5. POSSIBILITY OF A SIMPLIFIED (“FACILITATED”) MERGER
Simplified or facilitated merger is an institution recognized by TCC only for mergers of stock companies. TCC regulates two different situations of facilitated merger according to the complete dominance or at least 90 (ninety) percent dominance of some shareholders..
Pursuant to first paragraph of Article 155, simplified mergers where the acquiring company holds 100% of the voting rights of the acquired company are divided into two sub-categories:
- Acquiring company holds all (100%) of the shares with voting rights of the acquired company; or
- A company or a real person or a legally or contractually connected group of persons hold all (100%) of the shares of the merging companies.
Pursuant to the second paragraph of Article 155, a merger where the acquiring company holds at least 90% of shares of the acquired company that has voting rights will be subject to the rules of simplified merger provided that:
- the minority shareholders are offered, in addition to the participation rights in the acquiring company, a cash or other compensation payment in accordance with TCC, which is equivalent to the real value of the participation rights; and
- no additional payment or personal performance liability or personal responsibility of minority shareholders arise due to merger.
When compared with the ordinary merger procedures, companies are under lesser obligation to provide documentation and in granting rights to the shareholders when they merge in accordance with the first paragraph of Article 155 of the TCC. In simplified mergers, companies are not obliged to prepare a merger report or grant shareholders the right to inspect the merger agreement and merger report. Nevertheless, the companies are still obliged to prepare a merger agreement containing fewer clauses. However, they have the option to not submit the agreement for the general assembly's approval. Companies are obliged to grant shareholders the right to inspect and prepare a merger agreement containing fewer clauses. The company should grant the right to inspect 30 (thirty) days before the application to the trade registry for the registration of the merger. On the other hand, the company has the option to not to submit the agreement for the general assembly's approval.
6. PROTECTION OF THE RIGHTS OF CERTAIN PARTIES IN M&A
Turkish law contains provisions for the protection of certain vulnerable third parties in M&A transactions. These vulnerable third parties are creditors and employees. Below we will provide a brief overview of the TCC provisions regarding the protection of creditors and employees in M&A transactions as well as give brief information on the liability and responsibility of shareholders after the M&A.
6.1.Protection of Creditors
The legislator attached importance to the protection of creditors in the merger of companies. In accordance with TCC, absorbing company is required to guarantee (e.g. by surety, warranty, pledge, mortgage, etc.) the receivables of the creditors of the companies involved in the merger in case these creditors make such demand within 3 months starting from the date when the merger comes in effect. The creditors must be informed about their abovementioned right via announcement on the Trade Registry Gazette to be made three times by both companies involved in the merger and the websites of the companies (if the companies are under the obligation to report such issues in their website as per TCC Article 1524).
6.2.Protection of Employees
According to the Turkish Code of Obligations, in the event of a transfer of a work place, entirely or partially, 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. The employees are entitled to object on an individual basis to the transfer of their employment contract. Where an objection is made by the employee, the employee's employment will terminate at the end of the legal notice period. In such circumstances, the employee will be entitled to full severance payment from the transferor. If there is a collective bargaining (labor) agreement, the provisions of such an agreement should be taken into account during the determination of the obligations of the transferor and transferee parties against the employee.
6.3.Liability and Responsibility of Shareholders
Pursuant to Article 153 of the TCC, the merger becomes effective by registering of the same to the trade registry. At the time of registration, all the assets and liabilities of the acquired company pass automatically to the buying company. The partners of the acquired company become the partners of the transferee company. The merger decision is also announced in the Turkish Trade Registry Gazette.
Pursuant to Article 158 of the TCC, the shareholders that are responsible for the debt of the transferred company before the merger have a liability for the same after the merger. Liabilities of the shareholders who are liable for the merging company's debts before the merger will continue after the merger, on the condition that debts in question were incurred before the announcement of the merger decision or the reasons that caused these debts took place before this date. This personal liability assigned to the merging company's shareholders is subject to statute of limitations of 3 years starting from the date of announcement of the merger. If the assets become due after the date of announcements, the statutory limitation period starts from the due date. This limitation does not apply to the responsibilities of the partners who are personally responsible for the debts of the acquiring company.
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. In this article we have given a brief overview regarding M&A as per TCC. However, it is important to note that as there are other legal provisions under Turkish Law applicable to M&A procedures. The most important of these is the rules regarding competition law. As per Article 12 of Communiqué numbered 2010/4, the merger and acquisition transactions that are in the scope of the communiqué should be approved by the Competition Authority. Therefore, if the relevant turnovers of the parties exceed the amounts specified in the M&A Communique, it is essential to obtain the approval of the Competition Authority by presenting all required documents of the parties with their financial and legal information. Therefore it is important to receive expert advice from legal professionals before, during and after conducting M&A procedures.