Recently, dynamism in the Turkish investment market has attracted a flood of international investors. M&A transactions have been principally focused on real estate, banking, insurance, telecommunications, and energy.
By the early 1990's as a result of modernization in the field of direct foreign investments, capital markets law and competition law are now a part of Turkish legislation and play a significant role in M&A. Clearly, M&A transactions involve more than one field of law. M&A under Turkish Law involve both the Turkish Commercial Code (TCC) and the Capital Market Law. In addition, the relevant communiqué of the Capital Market Board (CMB), the Code of Obligations and Law on the Protection of Competition, Labor Code, Banking Law and Tax Law contain provisions regulating M&A.
The M&A process is often a complicated one, both in the context of business and legal requirements. Clearly, the key business consideration is the valuation of the transaction. The valuation process is aided by appraisal firms who analyze the target company's financial position. As a legal requirement, a "merger" is realized between the companies of the same legal status. Likewise, Article 451 of the TCC indicates that a joint stock company may acquire another joint stock company. "Acquisition" means taking control of assets and is generally realized by way of "asset transfer" or "share transfer". Share transfer is diversified due to the type of shares. The transfer of bearer shares of a joint stock company must be accomplished by way of delivering the possession of bearer share certificates. The registered shares are transferred through endorsement and delivery based on a board resolution indicating the registration of the buyer in the company share book. For acquisition of shares in limited liability companies, a written and notarized share transfer agreement and shareholders resolution approving such transfer is legally required.
In practice, the steps of M&A are Pre-Agreement, Due Diligence, Negotiation, Conditions Precedent and Closing. The Pre-agreement stage is initiated by means of a legal instrument such as a letter of intent, setting out the intentions of the parties. Due Diligence is then commenced, which is the background investigation helping the identification of potential obstacles to an acquisition. The consequences of due diligence often enables the buyer to renegotiate the price of the target company or decline entering into the transaction. Commonly, the Due Diligence stage is completed by proposing a valuation to the target company. Subsequent to due diligence, the transaction agreements including share purchase agreement, subscription agreement, and shareholders agreement negotiations may start including price offer.
Most transaction agreements foresee a "closing date". Between the signing of transaction agreements and the closing date, as a "conditions precedent," some official permission is required. M&A has a tendency to eliminate competition in the relevant market and/or create barriers on new entries to the market. Therefore, the Turkish Competition Board's approval of an M&A must be obtained if either of two thresholds is met: EITHER an aggregate market share exceeds 25% in the relevant market after the transaction is concluded OR the total turnover of the combined companies exceeds TRY25 million. The required approvals may vary depending on the specific sector of a target company. For instance, if an insurance company is involved in an M&A, then obtaining an approval from the Undersecretariat of Treasury, General Directorate of Insurance is a prerequisite. If a bank is involved, the transaction is subject to the approval of the Banking Regulation and Supervision Agency. For the energy sector, permission of Energy Market Regulatory Authority will be required under certain circumstances. Since public joint stock companies are regulated by the CML, the Communiqué Regarding the Procedures of Merger Transactions requires that after a merger agreement is drawn up and before the general assembly meetings, CMB consent must be obtained.
Generally, because Turkey has made great strides in developing its legislation and economy, M&A transactions are increasing in value. It appears that such increase has occurred in parallel to an increased belief in foreign investor that legislation and practice in Turkey is compatible with that of the developed world.
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