Turkey: Acquisition Of A Company Under Turkish Law (July 2015)

Due to a growing global financial market and cross-border investments, foreign companies are attracted by the possibility to invest in Turkish companies. As a consequence, the investment and thus the acquisition of such a Turkish company might be processed under Turkish Law. The general principles for an acquisition of a company under Turkish Law are included in several codes, especially in the Turkish Commercial Code ("TCC"), Competition Laws and several Tax Laws.

Pursuant to Article 136 TCC, companies can be merged either through the acquisition of a company by another company ("merger by acquisition") or through the union of two companies under a new company ("merger by the formation of a new company"). An acquisition can either be carried out through the purchase of the shares or the assets of the target company. Considering the purchase of the shares, the buyer will receive in return ownership control of the target company and thus also indirectly control over the assets. It must be pointed out that all risks and liabilities are also transferred and acquired within this form of acquisition. Simplified one can describe an acquisition as the purchase of a company by another company, mostly by a larger company, whereas all business is transferred and not revoked. In contrast, a merger through the formation of a new company will result in the integration of two or more companies to one separate and independent business entity. 

In order to initiate an acquisition, the target company and the prospective buyer will first of all sign a pre-agreement mostly in the form of a letter of intent and declare thereby the interest in cooperating and selling shares or assets. This agreement will be signed together with a Confidentiality Agreement, whereby the possible investor agrees to treat the information and details provided by the target company confidentially. Hence, the target company will disclose an information memorandum whereas the buyer may provide possible investment alternatives in a portfolio. The information memorandum will provide confidential material on the history of the company, their business, finances, ambitions and advantages for a possible investment. 

The prospective buyer may afterwards commission a valuation of the target company by one of the "Big Four" or another firm in order to decide whether to acquire the shares or assets. Thus, the market value of 100 % of the share capital of the target company is to be calculated. In this stage of transaction, due diligence is one of the most important aspects. The valuation will be based on financial statements of the last years and strategic financial forecasts provided by the target company. One might have a critical look at the valuation as the efficient performance depends on the availability of documents and on the cooperation of the target company. Furthermore, the reliability of the sources of information will not be verified as the valuation differs in its scope and objective from an audit or full scope due diligence. 

To finalize the acquisition in the form of a share transfer, the parties will usually agree on a Share Transfer and a Purchase Agreement. The time from the valuation until the signatures for the final agreement can take a long time as all relevant information have to be summarized and composed. Nevertheless, a Closing Date will be fixed in order to complete the transaction. The TCC requires a written and notarized Share Transfer Agreement in case of the acquisition of shares in limited liability companies. 

The Agreement includes all relevant information of the transaction in regard to the share capital, the responsibilities of the parties, the management of the company and liability clauses. Most importantly, the parties will agree on the amount of the shares and the purchase price in the Agreement together with a detailed balance sheet and loss and profit table. The seller and the buyer will codify warranties, particularly with regard to the disclosed information being true and accurate and the availability of sufficient funds to fulfill the obligations of the Agreement. Additionally, another Confidentially Agreement might be signed in order to prevent the disclosure of confidential information to third parties. The Confidentiality Clause will remain in force even if the Agreement will be terminated for any reason. A Penalty Clause is often added at the end of the Agreement in order to prevent any breach of the Agreement. 

The acquiring company might install a Board of Directors which is especially codified in Article 359 TCC for joint stock companies. The composition and the meetings of the Board of Directors can then be laid down in the Agreement which will most of the time consist of several members of the target and acquiring company.

In some cases the approval of the Competition Board may be required under the Competition Law and the Communique No. 2010/4 on Mergers and Acquisitions. In case the share or asset transfer exceeds the thresholds described under the Competition legislation, the transfer will be subject to the approval of the Competition Board. As a consequence, Article 7 of the Competition Law states that M&A activities have to be notified to the Competition Board in order to become legally valid. The Merger Communique defines in Article 5 and 7 the thresholds and which type of transaction is subject to the notification and approval of the Competition Board.

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.

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