1 Deal structure

1.1 How are private and public M&A transactions typically structured in your jurisdiction?

The Turkish Commercial Code (6102) recognises two types of merger structures:

  • merger by acquisition; and
  • merger by formation of a new company.

In a merger by acquisition, the target is terminated without liquidation by transferring all of its assets and liabilities to the acquirer. In a merger by formation of a company, two or more companies transfer their assets and liabilities to a new company to be established, and shares are granted to the terminated companies' shareholders corresponding to the previous distribution of shares. In some cases, the Commercial Code facilitates a simplified merger structure. The merger structure might also be more complex depending on the nature of the transaction.

As for acquisitions (which are not part of a merger transaction), either partial or complete acquisition is facilitated under the existing legal framework. Acquisition transactions can be conducted through a share purchase or an asset purchase.

The same structures also apply to public M&A transactions; however, there are additional regulations to comply with regarding public M&A transactions.

1.2 What are the key differences and potential advantages and disadvantages of the various structures?

In a merger by formation of a company, the parties agree to establish a new company; while in a merger by acquisition, the assets and liabilities of the target are transferred to the buyer. One important advantage to consider is the simplified merger structure, which may apply where:

  • the acquirer holds all voting shares (or more than 90% with certain additional requirements) of the target; or
  • a third party holds all voting shares in both companies involved in the M&A procedure.

For acquisitions, an asset purchase results in the acquisition of the whole commercial enterprise along with all of its assets and liabilities, including all fixed assets, enterprise value, trade names, other IP rights and other assets which are permanently attached to the business, unless otherwise agreed. The buyer and seller will be jointly liable for the debts of the enterprise for two years following closing of the deal, which in some instances is considered an important decision factor.

In terms of a share purchase, the overriding aim of the agreement is to gain control over how the future of the commercial enterprise is determined. The main difference between these structures relates to taxation. As is discussed in question 4.3, in most cases a share purchase is more advantageous than an asset purchase in terms of taxation. There are also differences in terms of the procedural requirements that apply to these two structures. In an asset purchase, the parties:

  • must follow a sequence of procedures;
  • may be required to conduct multiple transactions before different authorities, such as the Land Registry Directorate, a notary public or the Turkish Patent and Trademark Office, depending on the types of assets being transferred; and
  • must issue notification to creditors.

By contrast, a share purchase is completed through a simplified process.

1.3 What factors commonly influence the choice of sale process/transaction structure?

The factors that commonly influence the choice of sale process/transaction structure include the following:

  • the liabilities of the parties following the M&A transaction;
  • taxes;
  • the procedural steps to be followed and completed during and after the M&A process;
  • the shareholding structure of the target and the terms and conditions of any applicable shareholders' agreement; and
  • the potential effects of the transaction for the agreements and liabilities of the target (eg, with regard to change of control or assignment clauses).

Although not as significant, the following factors may also influence the choice of sale process/transaction structure:

  • the financial status of the target, bankruptcy or indebtedness;
  • the level of information which can be obtained in relation to the target;
  • the sector-specific rules to which the target is subject;
  • the closing conditions; and
  • the buyer's preference not to be required to publicly disclose or announce its status as the buyer.

In most cases, share purchase agreements are usually attractive to the parties as a taxation-friendly and procedurally less complex alternative.

2 Initial steps

2.1 What documents are typically entered into during the initial preparatory stage of an M&A transaction?

Prior to commencement of the M&A transaction, the execution of a non-disclosure agreement is typically required by the seller side to prevent the disclosure of its trade secrets, consumer data, financial data, market opportunities and business affairs, as well as the existence and scope of the M&A negotiations. Since the Personal Data Protection Law (6698) came into force, data processing agreements are also introduced at the initial preparatory stage of an M&A transaction to ensure that the target can fulfil its legal obligations prior to sharing any personal data with the buyer side.

A letter of intent and/or a memorandum of understanding is also commonly signed in the initial preparatory stage of the transaction. This document aims to regulate the process until execution of the final agreement and to outline the structure of the transaction. If the interested seller or buyer side will conduct due diligence prior to signing the share purchase agreement and the shareholders' agreement, the preliminary documents also stipulate the general conditions relating to such due diligence process. In certain cases, a process letter which sets out a general framework for the M&A auction schedule, the terms and conditions for offers and other relevant information may also be issued by the seller side and sent to the potential buyers.

Subsequently, a term sheet may be negotiated and executed by the parties which determines the conditions with respect to the final documents.

2.2 Are break fees permitted in your jurisdiction (by a buyer and/or the target)? If so, under what conditions will they generally be payable? What restrictions and other considerations should be addressed in formulating break fees?

It is possible to agree on break fees for the buyer side, the seller side or the target as per the principle of freedom of contract, which prevails in Turkish contract law. The parties can include a penalty clause for breach of an agreement or subject to the realisation of a condition (eg, non-completion of closing). However, it is not common practice in Turkey to agree on break fees, unless the initial preparatory stage puts a party under a material financial obligation, such as a due diligence process, or there is a long exclusivity period. If there is an enforceable penalty clause, the penalty can be claimed without any requirement to prove damages. Although not common, if a break fee is payable by the target, in certain instances, the term may violate the Commercial Code's rules on financing for acquisitions.

In case of a dispute, penalty clauses may be subject to the evaluation of the court and the court may reduce the penalty if it is found excessive. The probability of court review and reduction is significantly less where the party that pays the penalty fee is a merchant. Another point to consider is to carefully draft the wording of a penalty clause to clarify whether the penalty is in lieu of or in addition to damages.

2.3 What are the most commonly used methods of financing transactions in your jurisdiction (debt/equity)?

Different methods are used in Turkey to finance M&A transactions, which vary depending on:

  • the size of the deal;
  • the potential tax considerations; and
  • the parties' financial conditions and preferences.

Common practices for financing include:

  • share pledges and other equity contributions;
  • pledges on enterprises, real estate, commercial fixtures or inventory stock; and
  • other shareholder debts.

2.4 Which advisers and stakeholders should be involved in the initial preparatory stage of a transaction?

The parties will determine the advisers and stakeholders to be involved, depending on the size and type of the transaction. For smaller and less complex transactions, legal counsel and tax advisers are generally involved in the initial preparatory stage of the transaction. Competition law counsel may also be included in the process, especially where the buyer and the target are competitors or where there are other competition law-related factors to be considered. Where necessary, financial advisers and investment bankers appointed by the parties may also participate. In order to analyse sector-specific issues, commercial experts may also be involved. Subject to the specifications relating to the target, union representatives or employment consultants may be notified and involved at this stage.

2.5 Can the target in a private M&A transaction pay adviser costs or is this limited by rules against financial assistance or similar?

The target may bear the relevant adviser costs. However, shareholders of the target that do not participate in the M&A transaction can argue that this would be contrary to the principle of equal treatment of all shareholders stipulated under the Turkish Commercial Code and would thus violate the fiduciary duties of the board of directors. Therefore, this principle may dissuade the target from bearing the adviser costs arising from the transaction.

3 Due diligence

3.1 Are there any jurisdiction-specific points relating to the following aspects of the target that a buyer should consider when conducting due diligence on the target? (a) Commercial/corporate, (b) Financial, (c) Litigation, (d) Tax, (e) Employment, (f) Intellectual property and IT, (g) Data protection, (h) Cybersecurity and (i) Real estate.

The points and considerations below will vary depending on different factors, such as:

  • the business activities, size, corporate structure and assets of the target;
  • the potential liabilities of the buyer; and
  • the transaction structure.

As it is not possible to provide a complete list of points for every scenario, the answers below are summarised to emphasise specific points of Turkish law that may differ from those in other jurisdictions in general; they do not include a list of all points that a buyer should consider during due diligence.

(a) Commercial/corporate

  • Examining the shareholding structure of the target;
  • Examining the shareholders and group company structure, and verifying whether the requisite notifications have been made to related shareholders or before the trade registry (to ensure the validity of previous shareholders' assembly decisions);
  • Examining the distribution of share certificates (specifically, for tax and pledge-related effects);
  • Examining resolutions of the board of directors;
  • Examining decisions on the release of members of the board of directors from liabilities;
  • Reviewing compliance procedures; and
  • Reviewing competition law compliance procedures.

(b) Financial

  • Examining the financial status and health of the target (to ensure that the target is not facing any financial difficulties outlined under Article 376 of the Turkish Commercial Code, which distinguishes between three different stages of capital inadequacy and sets out mandatory precautions to be taken by the board of directors, including the application to the court to declare corporate bankruptcy accordingly); and
  • Ensuring the correctness of financial statements.

(c) Litigation

  • Reviewing current, pending or threatened court proceedings;
  • Examining arbitration proceedings; and
  • Reviewing statutes of limitation.

(d) Tax

  • Conducting tax and social security payment reviews and checks (this is specifically important if the company is a limited liability company, rather than a joint stock company, as in such case the shareholders of the target following the acquisition will be liable for tax and social security payments of the company);
  • Reviewing the liabilities of the parties for taxes owed by the target (although these are subject to different regulations – in the case of an asset purchase, the buyer may be liable for previous tax debts of the target for five years following the closing date); and
  • Conducting comprehensive tax and social security payment reviews for technology companies located in technology development zones or other specific-sector companies where tax exemptions are applicable.

(e) Employment

  • Reviewing employment law-related liabilities and examining the amount of compensation and severance pay (in the case of an asset purchase, Article 6 of the Labour Law (4857) foresees that all existing employment agreements will be transferred to the buyer along with all rights and obligations, and imposes joint liability in this regard on the transaction parties for two years following the date of the transfer); and
  • Reviewing employment agreements and practices (specifically, whether there will be a change in employment terms or practices, in which case the employees may have a right to terminate the agreement with valid cause resulting in additional severance pay or compensation liabilities for the target).

(f) Intellectual property and IT

  • Reviewing patent and trademark registrations;
  • Reviewing licence agreements and change of control or assignment procedures; and
  • Ensuring that copyrights are duly transferred to the target or that the related works were created by the employees of the target (this is important, as for the validity of the transfer, a written agreement – that is, an agreement with an acceptable signature – specifying the transfer of all economic rights is required unless the works were created by the employees of the target).

(g) Data protection

  • Reviewing data processing and transfer mechanisms and ensuring that the requisite consents have been obtained (especially if there are personal data transfers outside Turkey);
  • Ensuring, where applicable, that the requirement to register with the Data Controllers Registry has been fulfilled; and
  • Ensuring, where applicable, that the requisite consents have been obtained to send advertising and promotional content, and that the relevant registration requirements have been fulfilled.

(h) Cybersecurity

  • Reviewing IT policies, systems and data protection procedures; and
  • Ensuring that employment agreements, third-party agreements and consent forms are compatible with cybersecurity policies and practices.

(i) Real estate

  • Reviewing the Land Registry records to confirm title to and any encumbrances on real properties;
  • Reviewing rent agreements for real properties that are owned and rented out by the target (especially considering the tenant-friendly articles of the Turkish Code of Obligations and related liabilities);
  • Reviewing rent agreements for real properties rented from third parties (especially considering mandatory rent adjustment articles of the Turkish Code of Obligations); and
  • Reviewing real estate conditions and buyer's acquisition limits in case of an asset transfer (real estate acquisitions of foreign companies and Turkish companies with foreign capital in Turkey are subject to specific terms and restrictions).

3.2 What public searches are commonly conducted as part of due diligence in your jurisdiction?

Several public searches are conducted to complete the due diligence. In general, the following documents and information must be obtained:

  • an official list of disputes, including employment and commercial disputes, to which the target is a party, from the relevant courts and enforcement offices;
  • the records of the target that are publicly available at the relevant trade registry, including:
    • the articles of association;
    • the types of shares;
    • the minutes of the general assembly relating to certain decisions;
    • the decisions on capital increases or decreases;
    • any notification to become a one-shareholder company; and
    • decisions relating to the members of the board of directors and signatory appointments;
  • lists of any trademarks, patents and utility models which are registered with the Turkish Trademark and Patent Office;
  • copies of the registration documents of the real estate belonging to the target, from the relevant land registries;
  • copies of documents found at specific registries, depending on the sector in which the target operates (eg, the registry of ships);
  • where applicable (pursuant to the size or activities of the target), general information relating to personal data processing and cybersecurity measures from the Data Controllers Registry; and
  • where applicable, any licences and authorisations held by the target subject to specific regulations relating to its field of activity.

Pursuant to the Capital Markets Law (6362), for public companies and for certain private companies, depending on whether they are subject to public disclosure requirements due to specific conditions, the following information may also be available:

  • independent audit reports and financial statements;
  • events materially affecting the activities and finances of the target; and
  • where the target's shares or other related capital market instruments are publicly traded, information, events and developments that affect the value and price of such instruments.

3.3 Is pre-sale vendor legal due diligence common in your jurisdiction? If so, do the relevant forms typically give reliance and with what liability cap?

An increasing number of sellers pursue pre-sale vendor legal due diligence to identify and assess the potential risks of the transactions, where there is a bidding process involved in the transaction. Instead of simply relying on the documents prepared by the buyer side, pre-sale vendor legal due diligence gives a clearer perspective to the seller side in negotiating the terms of transactions. It also helps the seller side to determine its position in terms of deal pricing. This due diligence may be provided to the buyer side on either a reliance basis or a non-reliance basis. In the latter case, potential buyers may demand a reliance letter from the seller side. However, requiring or providing a reliance letter from the seller side is not yet common practice in the Turkish M&A market.

4 Regulatory framework

4.1 What kinds of (sector-specific and non-sector specific) regulatory approvals must be obtained before a transaction can close in your jurisdiction?

Private company M&A transactions are not subject to a specific regulatory approval process. However, as explained below, there are sector-specific and competition law related regulatory approval processes.

Pursuant to the Communiqué of the Competition Board on the Mergers and Acquisitions Requiring the Authorization of the Competition Board, M&A transactions will be subject to the authorisation of the Competition Board if:

  • the local turnovers (in Turkey) of the transaction parties exceed TL 100 million in total, and the local turnovers (in Turkey) of at least two of the transaction parties each separately exceed TL 30 million; or
  • in acquisitions, the value of the asset or activity that is subject to the acquisition, and in mergers, the local turnover (in Turkey) of at least one of the transaction parties, exceeds TL 30 million and the global turnover of at least one of the other transaction parties exceeds TL 500 million.

In addition, depending on the transaction, some sector-specific notifications to regulatory bodies – such as the Central Bank of the Republic of Turkey, the Banking Regulation and Supervision Agency, the Energy Market Regulatory Authority, the Information and Communication Technologies Authority or the Radio and Television Supreme Council – may be required.

For real estate purchases, there are some limitations on the sale of real estate to foreign individuals or entities, and to Turkish entities with foreign shareholders.

For public companies, pursuant to the Communiqué of the Capital Markets Board on the Mergers and Demergers, with respect to merger and demerger transactions to which publicly held corporations are a party, there is a requirement to prepare an announcement text and to obtain the approval of the Capital Markets Board as part of public M&A processes for publicly held companies.

4.2 Which bodies are responsible for supervising M&A activity in your jurisdiction? What powers do they have?

The Competition Board is responsible for providing guidance on M&A transactions that exceed certain limits, as explained in question 4.1. Accordingly, the Competition Board may deny authorisation to an M&A transaction or conditionally authorise the transaction with additional conditions or responsibilities for the parties. The Competition Board may also impose administrative fines if the notification obligation is not fulfilled.

The Capital Markets Board oversees transactions where at least one of the parties is a publicly held company. The Capital Markets Board is authorised to impose administrative penalties provided that a publicly held company does not comply with the requirements of the Capital Markets Law. The Capital Markets Board is also authorised to oversee the requirement of public disclosure through the Public Disclosure Platform. Additionally, the approval or authorisation of the relevant sectoral authority may be required for regulated sectors.

4.3 What transfer taxes apply and who typically bears them?

The taxes applicable to M&A transactions vary greatly depending on factors such as:

  • the transaction type – share or asset purchase;
  • the term of holding such assets; and
  • the taxes applicable to shareholders.

Although it is not possible to explain all applicable taxes and exemptions, a general summary is set out below. However, as the exemption and calculation systems involve complex features, it is very important to obtain tax advice and carefully review the tax obligations for each specific transaction.

In principle, the purchase of assets is subject to VAT at a rate of 18%. However, there might be reductions of up to 8% or 1%, or even a full exemption, in certain cases. For example, if the target held certain real estate in its assets for at least two years prior to the transaction, these are exempted from VAT.

Under Turkish law, agreements may be subject to stamp tax, since documents that indicate a particular price fall within the scope of the Stamp Tax Law. The current stamp tax rate is 0.948% for 2021. The highest price indicated in the relevant document will be taken into account in calculating the exact amount of stamp tax, and accordingly, specialist advice should be obtained, as the application of the stamp tax to the specific transaction can be very important. The maximum amount of stamp tax that may be imposed on a document is TL 3,534,679.90 for 2021. The signatories to an agreement are jointly liable for paying the taxes to the tax authority. Acquisition agreements that benefit from the exceptions under the Corporate Tax Law are not subject to stamp tax. Likewise, the share transfer agreements of joint stock and limited liability companies may be exempt from stamp tax. Nevertheless, this exception is solely for share transfer agreements; therefore, shareholders' agreements and share subscription agreements can be subject to stamp tax. In certain cases, an agreement may not be subject to stamp tax where it is not executed in written form.

In principle, if the shareholder is subject to corporate income tax (eg, a company), the relevant corporate income taxes, and if the shareholder is subject to income tax (eg, a real person not deemed a merchant), the relevant income taxes may apply to the gains from the sale of the shares, subject to specific calculation procedures. However, if certain conditions are met and the shares of a joint stock company or limited liability company which are subject to the transfer are held by the shareholder for at least two years prior to the transaction, for corporate income tax 75% of the gain from the sale of the shares and for income tax 100% of the gain from the sale of the shares may be exempt from the relevant taxes.

5 Treatment of seller liability

5.1 What are customary representations and warranties? What are the consequences of breaching them?

Customary representations and warranties are shaped around the principle of releasing the seller from liability for qualifications reported to the buyer as per the Turkish Code of Obligations. In this regard, generally, exhaustive lists of representations and warranties of the seller are provided in the agreements; and if due diligence is conducted, they will be significantly shaped by the findings of the report. In a standard sale and purchase agreement, customary representations and warranties of a seller may relate to issues such as the following:

  • the legal capacity and authority of the sellers;
  • the absence of any conflict between the transaction agreements and the target's bylaws, or any agreement by which the sellers or the target is bound;
  • title to shares or assets being sold and the condition of assets;
  • the accuracy of the corporate and capital structure of the target;
  • the validity and completeness of the licences and authorisations held by the target;
  • compliance with laws and permits; and
  • financial matters, including the target's accounts, borrowing and other arrangements.

Subject to the agreement of the parties and the findings of the due diligence report, it is also common to provide representations and warranties that there is full compliance with the following subjects, or that no other information is available relating to the following subjects than what has been determined under the due diligence report:

  • material contracts;
  • litigation, arbitration or other proceedings;
  • environmental matters;
  • intellectual and industrial property rights;
  • tax and social security payments;
  • employees, retirement schemes and other benefits;
  • environmental or health and safety laws;
  • insurance; and
  • information technology and data privacy.

In general, the alternative rights of the buyer, compensation calculation methods or penalty clauses in case of the seller's violation of representations and warranties are specifically determined under the agreements. However, if such terms are not agreed upon under the agreement, the provisions of the Turkish Code of Obligations on the breach of liability will apply and the breaching party will be liable to pay damages.

5.2 Limitations to liabilities under transaction documents (including for representations, warranties and specific indemnities) which typically apply to M&A transactions in your jurisdiction?

Under the Turkish Code of Obligations, the parties may agree on limitations to liability pursuant to the general principle of freedom of contract.

The limitations to liability can be formulated in different ways, such as the following:

  • de minimis thresholds of limitation, with a certain maximum amount determined under the agreement or to be calculated pursuant to a formula with respect to each claim or an aggregate (basket) amount;
  • limitation of or exception to certain types of damages;
  • indemnification obligation limitations;
  • survival periods for the applicability of representation and warranties;
  • introduction of the additional conditions or cure periods before any claim; and
  • the shifting of the burden of proof.

Nevertheless, liability for gross negligence cannot be eliminated through the agreement of the parties as stated under the Turkish Code of Obligations.

5.3 What are the trends observed in respect of buyers seeking to obtain warranty and indemnity insurance in your jurisdiction?

Warranty and indemnity insurance is not common practice under Turkish legislation. Currently, Turkish insurance companies tailor the characteristics of warranty and indemnity insurance to existing insurance models, such as liability insurance.

5.4 What is the usual approach taken in your jurisdiction to ensure that a seller has sufficient substance to meet any claims by a buyer?

Customary practices and methods through which a buyer intends to ensure that a seller has sufficient substance to meet any claims include:

  • obtaining a letter of guarantee from the target or the parent company of the target or seller, or a trusted third party, indicating that the seller side has the capacity to meet any claims relating to the transaction;
  • establishing a pledge on corporate shares or real estate belonging to the target in favour of the buyer;
  • deferring part of the payment of the purchase price for a determined period; and
  • putting part of the payment into an escrow account for a period of time and signing an escrow agreement.

5.5 Do sellers in your jurisdiction often give restrictive covenants in sale and purchase agreements? What timeframes are generally thought to be enforceable?

Restrictive covenants can take various forms, depending on the nature of the agreement. Confidentiality, non-compete and non-solicitation clauses are quite common restrictive covenants in sale and purchase agreements.

Especially for non-compete covenants, it is very important to review the legal applicability pursuant to the practices of Turkish competition law, given that such restrictive covenants may be prima facie unenforceable or may cause a violation of mandatory terms and the imposition of administrative funds. Restrictive covenants where the seller undertakes not to continue its activities in the same or similar sectors are also quite common. Such clauses are key to ensure that a profitable deal is concluded from the perspective of the buyer. However, they must be limited in sense of their scope, duration and geographical location, and should be reviewed carefully.

Although it is also common for parties to enter into non-solicitation agreements, such agreements may constitute a violation under competition law. However, a legal framework with respect to non-solicitation agreements is yet to be set out by the Competition Authority (an investigation initiated by the Competition Authority in this regard is currently ongoing).

5.6 Where there is a gap between signing and closing, is it common to have conditions to closing, such as no material adverse change (MAC) and bring-down of warranties?

Although these originated from the common law system, it is quite common in Turkish M&A practice to insert into an agreement clauses concerning no MAC and bring-down of warranties on condition of the occurrence of events that have significant importance for the bidder side in particular. MAC clauses are drafted in two ways:

  • One enables the bidder to withdraw from the signed but not yet closed agreement or postpone the closing date; and
  • The other concerns warranties and indemnities.

Some MAC clauses may include a statement by the seller to the buyer that no significant negative change has occurred as of the closing day. Subsequently, MAC clauses can vary in relation to:

  • the objectives and expectations of the parties;
  • the activity fields of the target; and
  • anticipated changes in the business market.

6 Deal process in a public M&A transaction

6.1 What is the typical timetable for an offer? What are the key milestones in this timetable?

Offers can be either mandatory or voluntary in public M&A transactions. Except in certain cases, the bidder must generally make a mandatory offer if the offer results in it gaining control of the target.

Different factors affect the timetables and processes. For example, if during a public M&A process, information, event or developments arise which could affect the value or price of the securities or the investment decisions of investors, this will trigger the public disclosure requirements and the relevant information must be disclosed to the public. For example, a memorandum of understanding or a similar preliminary document that triggers the public disclosure requirement may include an additional step in the process.

Apart from factors such as these, without the prior internal process for preparing the public offering, the general procedure is as follows:

  • The board of directors of each party approves a resolution to initiate the transaction.
  • The bidder signs a brokerage agreement with an investment firm.
  • The bidder applies to the Capital Markets Board within six business days of the acquisition of shares or other transaction which results in it gaining control of the target.
  • The Capital Markets Board may require additional documents or information in order to decide on the application,
  • If the application is approved, an announcement is made by the bidder on the Public Disclosure Platform and on the website of the target as part of the disclosure requirement.
  • The takeover bid process will be commenced by the Capital Markets Board within two months of the date on which the obligation to make a takeover bid arises. However, the Capital Markets Board is authorised to extend this period if necessary.
  • The takeover bid process will start within six business days of the date of approval of the information form by the Capital Markets Board.
  • The period of the actual takeover bid will last between 10 and 20 business days.

The timetable for voluntary takeover bids is similar to that for mandatory takeover bids.

6.2 Can a buyer build up a stake in the target before and/or during the transaction process? What disclosure obligations apply in this regard?

A buyer can build up a stake in the target before the transaction process commences. However, in public M&A transactions, control of a public company is usually held by a small number of shareholders through non-traded shares. Accordingly, in most instances a buyer may not have the intention to build up a stake. However, if the buyer wishes to build up a stake, as per the Communiqué on Material Events Disclosure, a disclosure obligation arises in case of the following:

  • A person or persons acting together become direct or indirect holders of 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% or 95% of the issued share capital or voting rights of a public company; and
  • The founding shareholder and the shareholders must disclose any direct or indirect acquisition of 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% or 95% of the issued share capital or voting rights of the company through investment funds belonging to a founding shareholder.

In addition, a general disclosure requirement applies under the Communiqué on Material Events Disclosure, which states that information, events and developments that may affect the value or price of securities or the investment decisions of investors must be disclosed to the public.

6.3 Are there provisions for the squeeze-out of any remaining minority shareholders (and the ability for minority shareholders to ‘sell out')? What kind of minority shareholders rights are typical in your jurisdiction?

Pursuant to Article 27 of the Capital Markets Code and the Communiqué on Squeeze-Out and Sell-Out Rights, a squeeze-out right applies:

  • if the total voting rights of shareholders reach 98% of the total voting rights of the target as a result of a takeover bid; or
  • if in any way – including acting in concert with other shareholders – the acquirer may exercise the squeeze-out rights to purchase minority shares.

In such conditions, minority groups have the right to sell out their shares.

Shareholders representing respectively a maximum of one-tenth of private companies or one-twentieth of public companies are deemed as minority shareholders. They enjoy several minority shareholders' rights, as follows:

  • the right to request the organisation of a general assembly meeting or, if the general assembly meeting has been convened, to propose an item on the agenda;
  • the right to request the appointment of an independent auditor or the replacement of an appointed auditor;
  • the right to request the postponement of discussions regarding balance sheets;
  • the right to be represented in the board of directors;
  • the right to request the issuance of registered share certificates; and
  • the right to request the dissolution of the company by the court.

6.4 How does a bidder demonstrate that it has committed financing for the transaction?

Pursuant to Article 6 of the Communiqué on Takeover Bids, the offeror must take all required actions and measures before disclosing the details of the offer in order to be able to fully pay the price of takeover bid at the end of the purchasing period. Additionally, the Capital Markets Board may request the offeror to obtain a guarantee from a local bank or legal entity outside the transaction with regard to payment of the takeover bid price. In practice, in some cases, licensed intermediary institutions that will participate in and carry out the offer may require other guarantees or payments from the bidder.

6.5 What threshold/level of acceptances is required to delist a company?

An application for the delisting of a company can be filed with the Capital Markets Board along with the requisite documents, provided that the applicant can demonstrate and prove the following share distribution by a list of attendees at a general assembly meeting held in the six months prior to the date of application and the application is found eligible by the Capital Markets Board:

  • More than 95% of the capital of the company is owned and held by a maximum of 50 shareholders; or
  • More than 50% of the capital of the company is directly and/or indirectly owned and held by provincial administrations, municipalities or other public authorities and bodies which are excluded from the scope of the Capital Markets Law.

An application should also be submitted to the Capital Markets Board for a mandatory tender offer for the remaining shares held by the majority shareholders.

6.6 Is ‘bumpitrage' a common feature in public takeovers in your jurisdiction?

Bumpitrage is not common practice in Turkey. However, the Communiqué on Takeover Bids allows a bidder to increase its voluntary takeover offer up to one business day prior to the expiry date of the actual takeover bid period. Therefore, the parties can renegotiate the bid price within the specified timeframe.

6.7 Is there any minimum level of consideration that a buyer must pay on a takeover bid (eg, by reference to shares acquired in the market or to a volume-weighted average over a period of time)?

A minimum level of consideration is set out in Article 15 of the Communiqué on Takeover Bids for a mandatory takeover bid. Accordingly, the mandatory takeover bid price for a listed company may not be less than:

  • the arithmetic average of the daily adjusted weighted average stock prices in the six months prior to the date of disclosure to the public of the agreement relating to the sale of shares; and
  • the highest price paid by the offeror or persons acting in concert with it for the same group of shares of the target in the six months prior to the bid, including direct share purchases leading to the takeover bid.

In some instances, if the offer price cannot be determined, the Capital Markets Board can request a valuation report.

Where an indirect change of control in the target triggers the tender offer, or where the target has more than one class of shares, there are additional considerations and calculation methods for determining the minimum mandatory takeover bid price for a listed company.

6.8 In public takeovers, to what extent are bidders permitted to invoke MAC conditions (whether target or market-related)?

Pursuant to Articles 10 and 16 of the Communiqué on Mergers and Demergers, where a material change in the financial position of any of the corporations participating in the merger occurs between the execution date of the merger contract and the date on which such contract is submitted for the approval of the general assembly, the managing body of the relevant corporation must notify this position in writing to its own general assembly, the managing bodies of the corporations participating the merger and the Capital Markets Board. In this case, the managing bodies of the corporations participating in the merger will consider whether the merger contract should be amended or the merger abandoned.

6.9 Are shareholder irrevocable undertakings (to accept the takeover offer) customary in your jurisdiction?

A provision in the Communiqué on Takeover Bids prohibits this practice. Article 11 of the communiqué states that a mandatory takeover bid may not be subject to any conditions. Therefore, binding a takeover bid by a target shareholder to accept or vote in favour of a scheme of the agreement is not generally possible in Turkish M&A practice.

7 Hostile bids

7.1 Are hostile bids permitted in your jurisdiction in public M&A transactions? If so, how are they typically implemented?

There are no specific provisions that either prohibit or facilitate hostile bids or other instruments in relation to hostile bids such as tender offers in public M&A transactions. However, hostile bids are not common in Turkish M&A practice, as majority shares or the management of companies is often held by relatively smaller groups of shareholders or even a single shareholder, in some cases through shares that are not publicly held.

7.2 Must hostile bids be publicised?

For hostile bids relating to public companies, in principle, the same publication requirements apply as for other public offers. In both cases, the decision to issue a public offer and the public offer itself must be published – irrespective of whether the offer is friendly or hostile.

If a company board of directors is informed of such hostile bid, an assessment must be made considering the fiduciary duties of board of directors' members and the obligation to ensure the equal treatment of shareholders.

7.3 What defences are available to a target board against a hostile bid?

Pursuant to the Turkish Commercial Code, the board of directors must protect the legitimate interests of the shareholders and the company. In terms of objecting to the transfer of shares, the Turkish Commercial Code provides different rules on listed and non-listed shares. For non-listed shares, important reasons laid down in the articles of association can prevent the transfer of shares. A non-exhaustive list of such reasons is set out in the relevant provision. For example, if the provisions of the articles of association on the composition of the shareholders would justify an objection to the transfer of shares in terms of the field of occupation or the economic independence of the company, this will be regarded as an important reason. Another option under Turkish Commercial Code, where the requisite provisions are included in the articles of association, is to offer to purchase the transferor's shares for their actual value at the time of application. For listed shares, the transfer of shares may be prevented in order to avoid exceeding the proportion of share limits determined under the articles of association.

Although not discussed in this Q&A, limited liability companies have a wider remit to include provisions that limit share transfers or changes in management control under the articles of association.

8 Trends and predictions

8.1 How would you describe the current M&A landscape and prevailing trends in your jurisdiction? What significant deals took place in the last 12 months?

Although the COVID-19 crisis has caused uncertainty and economic instability in many sectors, the Turkish M&A market is nonetheless stronger than ever. Notably, the country's first ‘unicorn transaction' – the acquisition of an Istanbul-based mobile gaming company for $1.8 billion – closed in 2020. Transactions conducted by the Turkish Wealth Fund also generated significant attention. In 2020, the Turkish Wealth Fund acquired shares of six public insurance companies for $936.7 million to consolidate them under one roof. The Turkish Wealth Fund was also involved in a transaction to obtain a controlling stake in Turkcell, one of the most reputable mobile companies in Turkey.

8.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms? In particular, are you anticipating greater levels of foreign direct investment scrutiny?

We believe that Turkey's efforts and determination to comply with EU law as a part of the EU accession process will result in upcoming legislative reforms. As outlined in the 2020 report on Turkey prepared by the European Commission, reforms to the legislation on domestic and cross-border mergers and acquisitions may be introduced to bring the Turkish legislation into line with the EU acquis. We do not anticipate the introduction of heightened scrutiny over foreign direct investment, due to the general principle of equality between Turkish and foreign investors outlined in Article 3 of the Foreign Direct Investment Code.

9 Tips and traps

9.1 What are your top tips for smooth closing of M&A transactions and what potential sticking points would you highlight?

The due diligence process has become increasingly important as the regulatory environment has evolved in recent years, with the enactment of new laws on important topics such as personal data protection and the expansion of the audit and fining powers of regulatory authorities such as the Competition Board, the Data Protection Board and the Information and Communication Technology Authority. Accordingly, our first tip for buyers is to conduct thorough due diligence in order to consider the new regulatory environment and risks.

Another important tip is to understand that the Turkish Commercial Code has mandatory rules which do not allow all terms of shareholders' agreements to be reflected in the articles of association of joint stock companies. This means that the good-faith rights of third parties may be protected only in some instances, and several terms and conditions may not be applicable, which could affect the rights of the shareholders. Accordingly, shareholders' agreements should be carefully reviewed by experienced counsel and additional protection mechanisms should be included to ensure the easy enforceability of terms under those agreements.

One final tip is to exercise caution with regard to regulatory approvals, as these will have implications for the structure, pricing and timing of the deal. Accordingly, it is very important to identify any required regulatory approvals as early as possible.

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.