Turkey: Squeeze Out Merger In Joint-Stock Companies

Last Updated: 30 August 2013
Article by Ertugrul Bayramogullari


A merger not only affects the companies in all aspects, but it is also of consequence to the shareholders involved. While the acquiring or merged company may face various managerial risks in case the shareholders who do not want to be a part of the post-merger structure or oppose the merger operation itself maintain their presence after the merger, existence of such a dissident group may also lead to receiving less benefit from the merger than has been originally anticipated. Under certain conditions, therefore, the need to relinquish the principle of ownership continuity, which is among fundamental tenets of a merger, may arise in an attempt to decrease the impact of this and similar unfavorable conditions. Accordingly, a number of national legislations give the shareholders opposing the merger the right to exit from the company and the other shareholders the right to squeeze out such shareholders, subject to certain requirements.

In this regard; as per Article 141 of the new Turkish Commercial Code nr. 6102 ("TCC"), while the companies involved in the merger may stipulate in a merger contract that only the compensation payment is granted, they can also provide shareholders with the option to choose either to acquire shares and shareholding rights in the acquiring company or to receive compensation payment equal to the actual value of the company shares to be acquired.1

Squeeze-Out Merger

Paragraph (2) of Article 141 of TCC, which governs squeeze-out mergers, does not set forth any necessity to justify squeezing out shareholders from the shareholding through merger, not does it cover any extra requirement such as the squeezed out shareholder causing problems. Rationalé of paragraph 2 of Article 141 of TCC, however, includes expressions such as squeezing out the minority and/or shareholder who "always causes problems", "disturbs the peace", "is unwanted" etc. Therefore, it is justified to assess that the legislator's intention has not been reflected in the article's text in the way as described in the rationalé.

To squeeze out shareholders following the merger, the contract for merger must cover the provision that squeezed out partners shall be paid compensation payments.2 Otherwise, it will not be possible to squeeze out any partner from the company in case such a provision is absent in the contract for merger, even if the resolution for merger is adopted with an affirmative 90% of the present votes.3

In cases where the compensation payment is not covered in the contract for merger, subparagraph (a) of paragraph 1 of Article 151 of TCC requires that the resolution for merger be adopted by a decision quorum equivalent to ¾ of the current votes in the general assembly provided that the majority of the registered and issued capital are represented. In cases where the compensation payment is mandatorily covered in the contract for merger, as per paragraph 2 of Article 141 of TCC, the resolution for merger as set forth in paragraph 5 of Article 151 of TCC should be adopted by an affirmative vote representing 90% of all voting rights of the company. This requirement is based on the fact that adoption by the general assembly of a contract for merger covering compensation payment translates into termination of the title of shareholder held by certain shareholder(s). For this reason, the resolutions for merger that result in squeeze out has been made conditional upon such a very high 90% affirmative quorum vote. Securing such a quorum vote leads to terminating shareholding rights of all or a part of the remaining shareholders, therefore preventing the partner(s) not wanted by at least 90% of a joint-stock company from maintaining the title of shareholder.

Compensation Payment

In a merger operation, a shareholder may not be squeezed out unless their compensation payment is paid. Although Article 141 of TCC does not put any requirement as to what the compensation will be, it has been stated therein that a non-monetary asset may be granted as compensation for withdrawal. Consequently, the compensation payment which will be given to the shareholders intended to be squeezed out may be either a certain amount of money, or shares/other types of securities (convertible bonds etc.) of another company. On the other hand, compensation payment should absolutely reflect the actual value of the acquired company shares. Although the law does not govern calculation of the actual value, this matter has been left to the course that the execution of the law will follow, provided that a "standing company" has been taken as basis.


1 ARTICLE 141-(1) In a merger contract, companies participating in the merger can provide shareholders with the option to choose either to have shares and shareholding rights in the transferee or to receive a compensation payment equal to the actual value of the company shares to be acquired. (2)Companies participating in the merger can set forth in the merger contract that only the compensation payment is granted.

2 "Basically, Paragraphs (1) of Article 141 of TCC gives the shareholder the right to exit from the company and paragraph (2) of the same Article provides the majority with the right to squeeze out. Çoştan, Hülya, Yeni Türk Ticaret Kanunu'na Göre Birleşme, Bölünme ve Tür Değiştirme Kararları (Resolutions for Merger, Spin-off and Conversion According to the New Turkish Commercial Code), Updated 3rd Print, February 2013, pg. 111.

3 Çelik, Aytekin, Anonim Şirketlerde Ortaklıktan Çıkarılma (Squeeze-Out in Joint-Stock Companies), 2nd Print, January 2012, pg.261-262.

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Ertugrul Bayramogullari
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