The Communiqué on Mergers and Spin-offs1 (the "Communique"), which entered into force on 28 December 2013, regulates the principles applicable to mergers and spin-offs of public companies. Compared to the previous communiqué2, the Communiqué redefined the process applicable to merges and spin-offs and introduced new concepts such as exit right and expedited merger and spin-off. This bulletin will touch upon the main principles provided under the Communiqué for merger transactions involving public companies.

Under the Communiqué, a public company may merge with another public or private company by (i) incorporating a new company (merger by formation of a new company) or (ii) acquiring the public or private company (merger by acquisition) by obtaining the Capital Markets Board's (the "CMB") approval. In this regard, the Communiqué lists a number of documents for submitting the merger application to the CMB including the merging companies' financial statements and expert report.

The financial statements of the merging companies must be approved by an independent auditor in accordance with the relevant communiqués issued by the CMB. The Communiqué includes detailed provisions on the preparation of the independent audit reports and the financial statements of the merging companies. In addition, the "expert report" must be prepared by a CMB accredited independent institution for the determination of, among others, each merging company's equity value, capital increase amount and share exchange ratio.

After the obtaining of the CMB's approval, the merger documentation including the merger agreement, independent audit reports relating to the last three years of the merging companies and the expert report must be disclosed to public at least 30 days before the date fixed for the general assembly of shareholders' meetings of each merging company. After the expiration of 30-day period, the merger agreement must be submitted to the approval of the general assembly of shareholders' of each of the merging companies. According to the Capital Market Law3, the merger must be approved in the general assembly meeting with the affirmative votes of the shareholders representing 2/3 of the votes present at the meeting (no meeting quorum is required). However, if the shareholders representing at least half of the total votes are present in the meeting, the decision quorum is the affirmative votes of shareholders representing the majority of the total voting rights present in the meeting.

According to the Communiqué on Common Provisions relating to Material Transactions and Exit Rights issued by the CMB (II.23.1, certain transactions of public companies, including mergers, are defined as "material transactions"). Accordingly, a general assembly of shareholders' resolution is required for the public company to enter into a material transaction and the shareholders not approving the material transaction in the general assembly meeting have the right to exit the company. If a shareholder exercises its exit right, the shares held by that shareholder must be purchased by the public company itself before the completion/registration of the merger.

According to the Communiqué, if the acquiring company is a public company and it holds at least 95% of the shares of the transferring company, expedited merger provisions will apply. In the event of an expedited merger, the content/scope of the application package is rather more trouble-free as opposed to the application package in a normal merger process. There is no need to submit an expert report, independent audit reports and the board of directors' report to the CMB. In addition, the merging companies are not obligated to submit the merger agreement to the approval of the general assembly of shareholders and may proceed only with the board of directors' resolutions adopted for the approval of the merger.

The Communiqué sets forth certain restrictions in connection with the capital increase amounts in a merger process. In this regard, if there are only two merging companies in the merger, the public company's capital cannot be increased more than 100% of its existing share capital. If there are more than two companies involved in the merger, the capital increase amount in the public company cannot exceed the public company's capital prior to the merger process. If such companies merge by way of incorporating a new company, the shareholders of the publicly listed company must acquire at least 50% of the share capital of the new company. The Communiqué provides for additional limitations if there are more than two companies involved in the merger process.

Since the enactment of the Communiqué, a number of mergers have been completed in the Turkish capital markets and minority shareholders exercised their right of exit. Considering the dynamics of the public companies, the completion of the process takes approximately four to six months depending on the authorities' workload and the content of the documentation.


1 Communiqué No. II-23.2, published in the Official Gazette dated 28 December 2013.

2 Communiqué on Merger Transactions (Serial I, No. 31).

3 Law No. 6362, published in the Official Gazette dated 30 December 2012

© Kolcuoğlu Demirkan Attorneys at Law, 2014

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