1 Relevant Authorities and Legislation

1.1 What regulates M&A?

There is no specific code which regulates mergers & acquisitions ("M&A") in all of its aspects within Turkey. However, the general principles governing M&A transactions are included under several codes, such as the Turkish Commercial Code, the Code of Obligations, the Capital Markets Law, the Law on the Protection of the Competition, the Labour Law and relevant Tax Laws.

1.2 Are there different rules for different types of company?

Publicly-traded companies are subject to the rules and regulations promulgated by the Capital Markets Authority, in addition to the provisions of the Turkish Commercial Code which are also applicable to different types of companies.

1.3 Are there special rules for foreign buyers?

Foreign buyers and domestic buyers are treated equally, as per the Foreign Direct Investment Law enacted in 2003. Unless otherwise stated in international agreements and certain specific laws, the same rules are applicable for foreign buyers. However, there is a notification requirement applicable to foreign buyers, which is required to be submitted to the General Directorate of Foreign Investment within one month after the completion of a transaction in Turkey.

In addition to the above, regarding the asset (real estate) transfer located in prohibited military areas, security areas or strategic areas, Turkish companies with foreign shareholders and Turkish companies incorporated by foreign investors are subject to prior approval.

1.4 Are there any special sector-related rules?

There are some special sector-related rules, such as in the energy, banking, insurance, media and telecommunication sectors. For example, the companies which have obtained licences from the Energy Market Regulatory Authority ("EMRA") are subject to the approval of the EMRA in the event of a shareholding change which is equal to or more than 10% (5% in publicly-held companies).

Regardless of such percentages, any transfer of shares that result in a change of control or any change in the ownership or usage rights of the assets also require the approval of the EMRA. The companies which have pre-licences from the EMRA are not allowed to make any direct or indirect changes on their shareholding structure except for (i) the indirect shareholding change in relation to publicly-held shares in the publicly-held companies, (ii) the companies which own facilities to be established based on international contracts, and (iii) the indirect shareholding change on the foreign shareholder of the company.

1.5 What are the principal sources of liability?

The liabilities are mainly determined and agreed in the relevant agreements, to be executed by the parties in relation to a specific M&A transaction. Other than that, regarding the asset transfers, the Code of Obligations regulates the liabilities of both parties (buyer and seller) jointly for two years following the realisation date of such an asset transfer. However, the Turkish Commercial Code regulates the personal liability of the shareholders for three years and the joint liability of the parties for an indefinite period.

2 Mechanics of Acquisition

2.1 What alternative means of acquisition are there?

There are two alternative means of acquisition: (i) share transfer; and (ii) 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.

2.2 What advisers do the parties need?

Typically, potential investors hire the services of legal, accounting and financial advisers. However, taking into account the context of the M&A, insurance advisers, real estate experts, experts on the environmental and social impact assessment and technical advisers may also be required during the transaction.

2.3 How long does it take?

The period of the transaction depends entirely on the nature of the transaction, such as the acquisition type (share or asset transfer), the financial size and the operations of the target company. Furthermore, whether the transaction is subject to any regulatory approval or not has a direct impact on the timing of the closing. We can divide the period into three sections: (i) due diligence (the sellers providing the documentation, complete and in due time; the buyers' work affects the completion of due diligence); (ii) execution of the relevant agreements, such as share purchase agreements and/or shareholders' agreements, and amendment of the articles of association of the target company, which are entirely subject to both parties' time and effort; and (iii) fulfilment of the terms and conditions agreed in the mentioned agreements, i.e. the statutory approvals and permits.

2.4 What are the main hurdles?

The main hurdle may be deemed as the approvals of the regulatory boards and the Competition Board which may mostly affect the schedule and/or the closing of the transaction.

As per the communiqué of the Turkish Competition Authority which was published in the Official Gazette on 29 December 2012 and entered into force on 1 February 2013, governing the review process of the M&A transactions that are subject to the authorisation of the Turkish Competition Board, the thresholds that set the boundaries of notification requirements read as follows: (a) the total turnovers of the transaction parties in Turkey exceed 100 million Turkish Liras ("TRL") (approximately EUR 32 million/USD 34 million), and the turnovers of at least two of the transaction parties in Turkey each exceed TRL 30 million (approximately EUR 9.7 million/USD 10.2 million); or (b) in acquisition transactions, the asset or the operation that is subject to the acquisition; in merger transactions, at least one of the transaction parties has a turnover in Turkey exceeding TRL 30 million, and a global turnover of at least one of the remaining transaction parties exceeds TRL 500 million (approximately EUR 161 million/USD 171 million).

Other than those, the voting rights in the Board and the General Assembly of the target company can be seen as a hurdle for the minority shareholder. In addition, as per the Turkish Commercial Code and Capital Markets Law, since the minority rights are regulated for the minority shareholders holding 10% and 5% ratios, respectively, these ratios may also be considered.

2.5 How much flexibility is there over deal terms and price?

Deal terms and prices are flexible in private transactions. With respect to privatisation tenders, the tender price must comply with certain terms, such as the pre-tender valuation of the relevant committee. Regarding the mandatory tender offers which are triggered as a result of transactions affecting publicly-traded companies, prices are to be blessed by the Capital Market Authority in line with the relevant legislation.

In respect of non-competition obligations in the agreements, the periods are subject to the limitations of the Competition Board.

2.6 What differences are there between offering cash and other consideration?

In principle, there are no material differences between offering cash and other consideration. If there is any share swap, the procedures of such a swap should be taken into account or, if there is a subscription in kind, there should be a court decision regarding the appraisal of the capital in kind.

2.7 Do the same terms have to be offered to all shareholders?

In the event that there is more than one shareholder, there is no requirement that the same terms should be applied to all shareholders other than those determined under the legislation. On the other hand, within the context of a mandatory tender offer for the shares of a publicly-traded company, the same terms and conditions should apply to all shareholders holding the same class of shares.

2.8 Are there obligations to purchase other classes of target securities?

Unless otherwise stated in the articles of association of the target company, there is no legal obligation to purchase other classes of target securities. However, in publicly-traded companies, if the transaction triggers a mandatory tender offer, the buyer should apply for the purchase of other classes of shares during the mandatory tender offer.

2.9 Are there any limits on agreeing terms with employees?

According to the Turkish Commercial Code, 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 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.

In addition, the employee and the employer can agree on a noncompete undertaking which will be effective after the termination of its employment contract with a maximum period of two years.

2.10 What role do employees, pension trustees and other stakeholders play?

Under Turkish law, there is no employees' committee, pension trust or similar organisation established in the companies as a management body. Unless otherwise provided for under the articles of association of the target company or shareholders agreements (such as pre-emption rights, options, etc.), other stakeholders do not play an active role. Moreover, neither the employees, representatives/trustees nor stakeholders play an active role in the decision-making process.

2.11 What documentation is needed?

Most frequently, a pre-agreement in the form of a term sheet or a letter of intent, together with a confidentiality agreement, are signed by the parties before the execution of the definitive agreements. After having agreed on the transaction, a share purchase agreement or an asset transfer agreement is signed by the parties. In the event of a share transfer in relation to the shares of a limited liability company, a notarial deed should be executed by the parties before the notary public. Regarding the share transfer in joint stock companies, there is no mandatory provision stating that the share purchase agreement should be in verbal or written form. However, a written agreement is preferred by the parties in common practice.

The amendment of the articles of association requires a General Assembly Meeting and the registration of a General Assembly Resolution at the relevant Trade Registry. If the company is a holding company, publicly-held company, bank, or a financial or insurance company, the approval of both the Ministry of Customs and Trade and the Capital Market Board is required for the registration. The amendment to the articles of association of energy companies requires the permission of the EMRA.

2.12 Are there any special disclosure requirements?

Special disclosure requirements have been regulated only for the publicly-held companies pursuant to the Capital Markets Law and its relevant communiqués. Accordingly, a disclosure of material events to the public should be made, which may affect the investment decisions of investors and the value of the capital market instruments, including cases where a legal person holds directly or indirectly 5%, 10%, 15%, 20%, 25%, one-third, 50%, two-thirds or 75% or more of the share capital or the total voting rights of the target company. These thresholds differ if the target company purchases its own shares.

2.13 What are the key costs?

The main cost is the stamp duty, the ratio of which is 9.48 per mil (0.948%) over the highest amount mentioned in each agreement that is applied to each original document. Regarding the stamp duty, there is a cap which is updated each year (the cap in 2015 is TRL 1,702,138).

In relation to tax issues, VAT (18%) may be applicable in respect to asset transfers, and income/corporate tax may be applicable depending on several features of the transfer. Additionally, there might be some costs regarding notarisation, translation and Trade Registry applications.

2.14 What consents are needed?

In any M&A transaction, the requirement of the notification of the Competition Board should be considered before the completion of the transaction. Therefore, if the related turnovers of the parties exceed the thresholds stipulated in the M&A communiqué, it is essential to obtain the approval of the Competition Board by delivering all the required documentation and financial and legal information of the parties.

With respect to the regulatory approvals, depending on the sector and the kind of target company, the approval of the EMRA, the Banking Regulatory and Supervisory Board, the Radio Television Supreme Council, the Information and Communication Technologies Authority, the Capital Markets Board or the Ministry of Trade and Industry will be required.

2.15 What levels of approval or acceptance are needed?

As per the articles of association of the target company, the board of directors and/or shareholders' resolution may be needed during the M&A transaction. Furthermore, as a result or a condition precedent of a transaction, an amendment of the articles of association might be required that is subject to the approval of the shareholders and the registration process at the relevant Trade Registry.

2.16 When does cash consideration need to be committed and available?

Principally, the cash consideration needs to be committed as of the execution of the share purchase agreements, and it needs to be available on the closing date of the M&A transaction. In the event that the consideration is paid in instalments or any condition is determined in the agreements for the consideration, an escrow mechanism can be arranged, or pledge or security agreements can be executed for the security of the consideration. In publicly-traded companies, the cash consideration is committed as per the calculation provided for in the Capital Markets regulations, and the source of such a consideration should be clearly defined and stated during the application of the tender process. Similarly to the M&A transactions in non-public companies, such a cash consideration needs to be available at the time of the closing of the M&A transaction.

3 Friendly or Hostile

3.1 Is there a choice?

The regulation that covers friendly and hostile transactions is not different. However, as per the Capital Markets legislation, in cases where the management control of a publicly-held target company is acquired by obtaining a certain group of shares by any person or shareholder, a tender offer is mandatory as it provides the protection of the rights of the other shareholders of the target company. Individuals/entities who own 50% or more of the capital and the voting rights of the target company are obliged to make a tender offer to the other shareholders, unless privileged shares exist.

3.2 Are there rules about an approach to the target?

There are no special rules regarding the approach to the target company, except for disclosure rules that may become applicable.

3.3 How relevant is the target board?

The target board is authorised to approve the share transfer in the target company and in accordance with such a resolution; the share transfer and new shareholding structure should be registered in the share ledger. Share transfer becomes opposable to third parties upon registration of the transfer into the share ledger. The board may avoid approving the share transfer for registration into the share ledger; however, the board cannot avoid adopting the relevant resolution, as long as such a transfer is made pursuant to the share transfer procedures under the Turkish Commercial Code and the articles of association of the target company.

3.4 Does the choice affect process?

In relation to publicly-held companies, as it is a legal requirement for the buyer to make an offer to the other shareholders after the completion of a share transfer, it will not affect the process.

4 Information

4.1 What information is available to a buyer?

The parties may execute a confidentiality and non-disclosure agreement and, accordingly, the seller may provide any confidential information to the buyer. However, the seller may prefer not to provide all the information. In such cases, such information may be provided at the signature of the agreements or stipulated in the agreements.

4.2 Is negotiation confidential and is access restricted?

Pursuant to the confidentiality and non-disclosure agreement executed between the parties, the access by the third parties may be restricted to the information and negotiation. Generally, the negotiation is performed between the representatives of the buyers and sellers, and, in addition to these participants, their relevant financial and legal advisers and employees may be allowed to participate in the negotiation.

4.3 When is an announcement required and what will become public?

The corporate documents will become public; for example, (i) the articles of association of the target company (including the amendments of such articles of association, share capital, founders, board members), (ii) some of the board resolutions (e.g. appointment of the board of directors and their duty distributions), and (iii) all general assembly resolutions which are open to public information, as they are required to be registered at the relevant Trade Registry. As per Turkish law, share transfers in limited liability companies are required to be announced and registered at the Trade Registry. For the effectiveness of the merger, the merger agreement, the most recent balance sheets of the respective companies and the resolutions with respect to the merger are required to be announced in the Trade Registry Gazette. Additionally, an announcement is made by the merging parties in order to inform the creditors three times with intervals of seven days.

In relation to the announcements to be made in the publicly-held companies, please refer to question 2.12 above.

4.4 What if the information is wrong or changes?

The sale agreement to be executed between the parties is the document which is most likely to stipulate the relevant provisions in the event of the disclosure of the wrong information or changed information.

As a result, in such cases, first of all a notification should immediately be made to the buyer regarding the issue, and it should state whether any loss or damage is still affecting the buyer due to wrong or changed information; the seller should then compensate the buyer's loss or damages according to the provisions agreed in the sale agreements. On the other hand, if the wrong information has been delivered to the state authorities, such as the Competition Board or the Capital Markets Board, sanctions may be imposed according to the relevant regulations.

5 Stakebuilding

5.1 Can shares be bought outside the offer process?

The shares can be bought outside the offer process considering the rules in the relevant legislation

5.2 Can derivatives be bought outside the offer process?

The derivatives can be bought outside the offer process to the extent that such derivatives are regulated on a contractual basis.

5.3 What are the disclosure triggers for shares and derivatives stakebuilding before the offer and during the offer period?

Please refer to our explanations under question 2.12 above.

5.4 What are the limitations and consequences?

The limitations and implications have been regulated under the Capital Markets Law and the relevant regulations. Any transaction against the principles and procedures under the Capital Markets Law will be invalid and the respective parties may have a pecuniary fine imposed on them.

6 Deal Protection

6.1 Are break fees available?

The break fees can be agreed by the parties in the agreement which are, in principle, valid and enforceable under Turkish law.

6.2 Can the target agree not to shop the company or its assets?

In the agreements, there should be a provision prohibiting the target company from shopping the company or its assets to any third party. Additionally, as per the agreements, the seller may also undertake certain actions of the target company, and if the completion of the transaction is not performed due to any act of the target company, the buyer will be compensated by the potential seller.

6.3 Can the target agree to issue shares or sell assets?

The target company can issue shares or sell assets provided that the parties did not agree otherwise.

6.4 What commitments are available to tie up a deal?

Penalty clauses and any security, such as mortgages or share pledges, are available to tie up a deal. It may also be agreed by the parties that the seller deposits the sale shares with an escrow.

7 Bidder Protection

7.1 What deal conditions are permitted and is their invocation restricted?

Under Turkish law, the parties may mutually agree on any terms and conditions, as long as they are in compliance with the provisions of Turkish law.

7.2 What control does the bidder have over the target during the process?

In principle, the bidder does not have a control over the target during the process. However, the bidder may prohibit some of the essential activities of the target company until the end of the completion of the transfer by foreseeing certain interim period obligations.

7.3 When does control pass to the bidder?

If it is a share transfer in a joint stock company, the transfer is completed by (a) the endorsement of the share certificates in the name of the buyer, if any, and the delivery of them to the buyer, and (b) registration of the new shares in the share ledger. If it is a share transfer in a limited liability company, the transfer is completed by (a) an executed notarial deed, and (b) adoption of the shareholders' resolution in this respect. Thereafter, the control passes to the bidder as a shareholder.

However, with respect to the management, the control passes to the new management when the new board members and managers, as the case may be, are registered at the relevant Trade Registry.

7.4 How can the bidder get 100% control?

The bidder can get 100% control in the event that it holds 100% of the share capital in the target company. However, such control can also be achieved by holding fewer shares which provide control over the target. The Turkish Commercial Code governs several quorums in order to adopt and perform various decisions. All shareholders are also entitled to participate in the share increase under the Turkish Commercial Code in order to not be diluted in the company. The Turkish Commercial Code grants the squeeze-out right to the shareholder who controls, directly or indirectly, at least 90% of the share capital and has at least 90% of the voting rights (i.e. the parent company) in a joint stock corporation. Accordingly, such a shareholder is entitled to exercise its right through an application to the relevant court, if the minority shareholder(s) acts in a manner to obstruct the company's operations, acts in bad faith, creates perceptible disruption in the company or acts recklessly. In a similar manner, as per the Capital Markets Law, if the thresholds designated by the Capital Markets Board are met upon a share purchase – through an offer or other means – the squeeze-out right can be exercised by the purchaser.

8 Target Defences

8.1 Does the board of the target have to publicise discussions?

According to the relevant Capital Markets regulations, publiclytraded companies are required to publish all matters in respect of internal information which have an impact on the decisions of the investors, such as the changes in the share capital of the company, new appointments in the board and auditor committee or changes to the financial structure of the target. However, such information should be published once it becomes precise; i.e. not at the negotiation/discussion stage, as the case may be applicable. Furthermore, certain decisions, such as the application of the tender offer process, the requirement of the tender offer, and the completion of the tender offer process should be publicised by the board of the target. On the other hand, the board is entitled to postpone the publication of the information in order to avoid damages to the legal rights and benefits of the company. Such kinds of legal benefits occur particularly in the event that (a) the negotiations are close to the agreement but in the case of the publication of the negotiation results, it will incur damages on the benefits of the investors, or (b) the application of the agreements or the relevant board decisions require the approval of the other party, or the disclosure of the information affects the period negatively.

In the above-mentioned circumstances, the company is required to avoid the risk of misleading the public and secure the confidentiality of the information during such a postponement period.

8.2 What can the target do to resist change of control?

Only the other shareholders may resist the change of control if he/she has any legal right under the articles of association or shareholders' agreement. Otherwise, any shareholder is entitled to sell its shares to any third party without any prior approval of the other shareholders.

8.3 Is it a fair fight?

The target comprises three main organs, namely (i) the general assembly, (ii) the board, and (iii) an independent auditor in joint stock companies, if required as per the relevant legislation. As the shareholders are entitled to appoint the board in compliance with the law and the articles of association of the company, they also allow some activities to be performed in the company and prohibit others. Taking into consideration the role of the shareholders in the company, it may be deemed fair for the board to not directly resist a change of control.

9 Other Useful Facts

9.1 What are the major influences on the success of an acquisition?

It is essential to obtain all relevant statutory approvals, permits and licences pursuant to the legislation. The sector should be assessed and considered in detail and the financial and legal due diligence should be performed.

9.2 What happens if it fails?

In the case of a failure of the transaction due to the non-compliance of any party, it may be decided that such a party would compensate the loss or damages of the other party and/or should pay the penalty which can be set forth in the agreements.

10 Updates

10.1 Please provide a summary of any relevant new law or practices in M&A in your jurisdiction.

The Capital Markets Board issued an amending communiqué to the "Shares Communiqué" in February 2015. According to such an amendment, in the event of share capital increases in publiclytraded companies, the capital contribution commitment can only be fulfilled by cash payments. In respect to cash loans previously provided by a shareholder, it is still possible to convert such loans into equity. However, by way of example, it is no longer possible to fulfil the capital commitments by way of assignment of future rights or receivables.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.