Turkey - Baker McKenzie of target companies’ shareholding through subscription to a capital...

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1. What are the key laws and regulation that govern mergers and acquisitions in your jurisdiction?

The key laws and regulations governing mergers and acquisitions in Turkey are the Turkish Commercial Code (no: 6102) (“TCC”), the Turkish Code of Obligations (no: 6098), the Capital Markets Law (no: 6362) and its various related Communiqués, the Corporate Tax Law (no: 26205) and the Law on the Protection of Competition (no: 4054).

2. What are the government regulators and agencies that play key roles in mergers and acquisitions?

Depending on the nature of the M&A transaction and target, there are three regulators or types of regulators that can have jurisdiction over the transaction: (i) the Competition Authority’s approval would be necessary if the turnover of the target and/or parties to the transaction exceed certain thresholds; (ii) the Capital Markets Board will supervise transactions where the target is a public company, especially when the protection of the minority shareholders is required (acquisition of a public company is not subject to the Capital Markets Board’s approval); and (iii) if the sector of the target company is regulated, it is highly likely that the specific sector regulator’s approval would be necessary for the transaction. Examples are the Banking Regulation and Supervision Agency for banks and certain other financial institutions; the Capital Markets Board for brokerage houses; portfolio management companies and other companies that are active in the capital markets; the Treasury for insurance and pension companies; the Energy Market Regulatory Authority for

energy distribution and generation companies; and the Radio and Television Supreme Council for broadcasting companies.

Although not playing a key role, the Foreign Investment General Directorate of the Under Secretariat of Treasury may have a great impact on mergers and acquisitions involving foreign investments. As for now, Turkish law treats Turkish and foreign investors equally, and foreign investments in Turkey are not subject to special governmental approvals or permissions. That being said, share transfers by foreign persons (other than routine capital market transactions) must be reported to the Foreign Investment General Directorate of the Under Secretariat of the Treasury (“General Directorate”) within 30 days of completion of the transaction, and an annual report obligation to the General Directorate with respect to their operations is imposed.

3. Are hostile bids permitted? If so, are they common in your jurisdiction?

Even though hostile bids are not prohibited under Turkish law, they are not common in Turkey due to the structure of Turkish companies with respect to controlling rights. Most public and private Turkish companies are controlled by a single shareholder or a small group of shareholders forming a single majority, making it practically impossible for bidders to go against majorities’ will or a majority-controlled board’s position. Acquisition of shares on the market or from minority shareholders would generally not enable bidders access to a controlling position in the company.

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LEXISNEXIS MERGERS & ACQUISITIONS LAW GUIDE 2015

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4. What laws may restrict or regulate certain takeovers and mergers, if any? (For example, anti-monopoly or national security legislation).

In principle, M&A transactions in Turkey are not subject to special governmental approvals or permissions. Depending on the target’s field of activity, however (i.e., banking, financial institution, energy, insurance, broadcasting), regulatory approval for the transaction may be required. Additionally, Competition Authority approval prior to the completion of the M&A transaction must be sought when:

■ the combined Turkish turnover of the transaction parties exceeds TL 100 million and the Turkish turnover of each of at least two of the transaction parties separately exceeds TL 30 million; or

■ the Turkish turnover of the asset or the activity to be acquired in acquisitions and at least one of the transaction parties in mergers exceeds TL 30 million, and the worldwide turnover of at least one of the other transaction parties exceeds TL 500 million.

An exception to the foregoing is M&A transactions that result in a foreign individual or entity, or a Turkish entity with foreign capital owning real estate in Turkey. Depending on the nature of the investor and the location of the real estate acquired, these acquisitions may be subject to a simple approval process or be entirely forbidden.

Certain other exceptions exist in terms of limitations to foreign capital in certain strategic sectors, such as transportation and broadcasting.

5. What documentation is required to implement these transactions?

In Turkey, M&A transactions are generally the acquisition of target companies’ shareholding through subscription to a capital increase and/or sale of shares. Joint venture and asset sale deals are also common practice in the Turkish market, preferred when depending on the desired outcome of the consolidation or certain dynamics and aspects of the target. Merger transactions and full or partial spin-offs, however, are implemented as part of restructuring activities to prepare the target company for an M&A transaction, and can be defined as the consolidation of multiple entities to form a new company, or the consolidation of multiple entities in one existing company resulting in the dissolution of the merging entities.

Documentation required to implement straightforward M&A transactions in Turkey can be grouped under four categories:

1. Preliminary Documents: At the beginning of the process a binding non-disclosure agreement is generally executed between the parties to the transaction. Following the initial phase of negotiations, a non-binding term sheet is signed between the parties or the buyer submits a non-binding offer to the seller to set the general outline of the upcoming transaction. The non-binding term sheet includes a binding exclusivity clause, whereas the non-binding offer permits the parties to conduct negotiations with third parties.

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2. Share Purchase Agreement/Subscription Agreement/Asset Purchase Agreement: Generally, depending on the specifics of the transaction, the main document governing the transaction can be a share purchase agreement, subscription agreement (in certain cases share purchase and subscription agreement) or an asset purchase agreement. All these agreements follow the international trends in terms of style and drafting, with certain language addressing Turkish law issues and requirements.

3. Shareholders’ Agreement/Joint Venture Agreement: Unless 100 per cent of the target company is acquired, the buyer and existing shareholders of the target company typically execute a shareholders’ agreement, governing, among others, the management and funding of the target company, as well as share transfers (rights of first refusal, tag-along and drag-along rights and initiating a public offering). In the implementation of a joint venture either as a legal entity or simple partnership (with no legal personality), a joint venture agreement is executed between partners in order to govern the management and funding of the joint venture company and share transfers.

4. Corporate Documents: M&A transactions also require several corporate documents be prepared. These documents typically include amendments to bylaws (called articles of association) of the target, in line with specifics of the transaction, board of directors and/or shareholders

resolutions, share certificates and registrations with the trade registries. Foreign investors should note that Turkish law is cumbersome in terms of formality requirements, and notarizations and apostille (for documents issued outside of Turkey) are frequently sought.

6. What government charges or fees apply to these transactions?

Charges or fees with respect to M&A transactions can be categorized as income tax, transaction tax charges and notary/registry charges.

In an asset deal, unless qualified as a commercial enterprise transfer, the transfer of the assets is in principle regarded as several distinct supplies of goods subject to VAT, the rate depending on the type of the goods (generally at 18 per cent, and for some specific goods at eight per cent). VAT does not apply to the sale of real property held for at least two years by corporate entities not engaged in the trading of real estate.

As a general rule, the gain the shareholder of the target company earns from the sale of its shares is subject to corporate income tax (CIT) at the standard rate of 20 per cent if the shareholder is a legal entity. However, if the shareholder has been holding printed share certificates representing its shares for at least two years, 75 per cent of the gain from the sale of its shares is exempt from CIT, provided certain conditions are met1. If the shareholder of the target company is a real person, then the gain derived from the sale of his/her shares will be 100 per cent exempt from income tax on the condition the real person shareholder holds the printed share certificates representing his/her shares for at least two years.


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A transfer of shares will be subject to VAT at 18 per cent. The transfer of the shares in a joint stock company is exempt from VAT if the shares are in issued form. The transfer of participatory shares in a limited liability company is subject to VAT if the shares have not been held for two or more years. If the shares of a joint stock company are issued and held for over two years, however, the gain is not subject to income tax. This exemption does not apply to the transfer of the participatory shares of limited liability companies.

Agreements signed or enforced in Turkey are subject to stamp duty at 0.948 per cent of the highest amount appearing in the agreement, up to a maximum TRY 1,545,852.40. Stamp tax is applicable to each original copy of the same agreement (i.e., if two copies are signed, stamp tax will be doubled). If the sale of shares is exempt from CIT, the share transfer agreement is also exempt from stamp duty. Advice should be taken in each transaction on how to determine the stamp duty payable and how to minimize it.

Notary and trade registry registration fees will be typical governmental fees applicable to M&A transactions. These will vary depending on the length of these corporate documents’ notarization and/or registry required under the transaction. In asset sale deals, registry fees to relevant other registries (title deed, Turkish Patent Institute, motor vehicles’ registry) should also be considered.

7. Do shareholders have consent or approval rights in connection with a deal?

In principle, shareholders do not have statutory consent or approval rights in straightforward M&A transactions. However, shareholders may have contractual consent or approval rights deriving from a shareholders’ agreement or a joint venture agreement executed between them. In these cases,

if all the shareholders possessing these contractual rights are not cooperative regarding the M&A transaction at hand, issues and complications may arise.

Shareholders have a statutory pre-emptive right pro rata to their shareholding regarding shares issued under a capital increase. This should be considered in share subscription deals. This pre-emptive right can be restricted or revoked only based on valid grounds and by a general assembly resolution with an aggravated quorum. However, as stated above (Question 3), because most Turkish companies are controlled by a single majority, limiting or cancelling their statutory pre-emptive right is generally not an issue in M&A deals. With respect to public targets, investors should be mindful of the close supervision of the Capital Markets Board and lawsuits that may be filed by the minority investors.

One other issue that should be kept in mind is joint stock companies’ right to refuse to recognize a share transfer, and to ask that the shares are not transferred to the third party purchaser that is the intended transferee, but to the target company itself, another shareholder or a third party at a price to be determined by a court as fair value. This provision has been established under the TCC and presents a significant problem for minority shareholders in Turkish joint stock companies.

8. Do directors and controlling shareholders owe a duty to the stakeholders in connection with a deal?

Directors and controlling shareholders’ liability would be at stake in case of abuse of dominance in a group of companies. A controlling company or its directors’ will be liable for losses arising from abuse of dominance over their subsidiaries/affiliates. If subsidiaries/affiliates suffer losses resulting from material structural decisions adopted

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in a general assembly or by the directors, such as a merger, spin-off, change of company type or dissolution, the issuance of stocks or securities or amendments to the articles of association, the shareholders who voted against the decision or recorded their dissenting opinion in writing can request compensation from the controlling company. Alternatively, they can request that the controlling company purchase their shares at their stock exchange value, if any, or at their market value (which is determined by a court-appointed expert). The provision gives further authority to the courts to adopt other equitable solutions, such as payment of the dividend the shareholder is deprived of due to restructuring.

Furthermore, as mentioned above in Question 8, in case of subscription by way of capital increase, the controlling shareholders or the directors (of public companies and companies with registered capital) have a general duty to the stakeholders to limit or revoke their statutory pre-emptive right based on the principle of equality between the stakeholders. If the controlling shareholders or the directors do not respect this principle, the minority shareholders may challenge their resolutions and seek directors’ liability.

9. Under what circumstances are break-up fees payable by the target company?

A break-up fee may be introduced under the transaction documents for either the buyer or the seller depending on the dynamics of the transaction.

In larger deals where the buyer’s failure to close the transaction will have a negative impact upon the seller company or the process is of a disruptive nature for seller’s operations, a break-up fee payable to the seller may be introduced to the preliminary transaction documents.

A break-up fee payable to the buyer might be introduced if the seller has the option to consider better offers after signing the preliminary transaction documents or to reimburse the transaction costs of the buyer if the deal can not be concluded due to acts of the seller.

A break-up fee payable by the target company can also be introduced. This is uncommon in the market, however, and it may violate acquisition finance rules under Turkish law if the target company is a joint stock company (please see No. 11 below for details regarding acquisition finance rules).

10. Can conditions be attached to an offer in connection with a deal?

The indicative offers in M&A transactions are usually given subject to certain conditions, such as the buyer obtaining customary internal approvals, regulatory approvals and retaining other conditions depending on the specifics of the transaction or satisfactory legal, financial and commercial due diligence results; and this is permissible under Turkish law.

11. How is financing dealt with in the transaction document? Are there regulations that require a minimum level of financing?

There are no regulations requiring a minimum level of financing.

The regular financing documentation for an M&A transaction usually comprises a loan agreement and the security documentation. Security documentation primarily involves share pledges and — depending on the complexity of the transaction — assignment of dividend receivables, commercial enterprise pledges, usufruct rights over the shares, mortgages over real estate or pledges over the goods of the target.


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The TCC, however, imposes new restrictions on financial assistance, potentially affecting the financing of leveraged buyouts. The TCC does not allow joint stock companies to provide an advance, loan or security (e.g., share pledge, assignment of receivables) for acquisition of its own shares by a third party. The former code did not recognise or restrict financial assistance, and companies could obtain loans from banks to purchase company shares, and in return, provide the target company’s shares and assets as collateral to the bank. Under the TCC, legal transactions violating this rule will be deemed null and void.

The two exceptions are transactions banks and other financial institutions concluded in their ordinary course of business (where the target itself is a bank or another financial institution) and transactions concluded by employees of the company (e.g., management buyout) or one of its subsidiaries.

There are no further restrictions on the use of financing for M&A transactions

12. Can minority shareholders be squeezed out? If so, what procedures must be observed?

Turkish law foresees different squeeze-out procedures under the TCC and the Capital Markets Law (applying to public companies).

The TCC permits two squeeze-out procedures, namely the merger squeeze-out (Art. 141) and squeeze-out of a shareholder acting in bad faith (Art. 208).

In a merger squeeze-out, the merging companies can seek the removal of the minority shareholders by (i) including a squeeze-out clause in the merger agreement; (ii) obtaining approval of the

merger agreement from the dissolving company’s general assembly with the affirmative votes of shareholders representing 90 per cent of the share capital; (iii) paying the minority the fair value of the shares, which corresponds to the percentage that the minority could have held in the merged company; and (iv) sourcing payment funds from the company’s freely disposable reserves.

Another squeeze-out procedure concerns group companies. Where a parent company directly or indirectly holds at least 90 per cent of the sister company’s shares or voting rights, it can purchase the minority shares at a value decided by the court, if the minority shareholders (i) disrupt the operations of the company, (ii) act carelessly or not in good faith or (iii) cause distress to the company.

The Turkish squeeze-out regime for public companies was introduced on July 1, 2014, and was then amended with the changes introduced on November 12, 2014.

Under the revised system, a shareholder acting alone or in concert with others holding 98 per cent or more of the total votes of a public company can exercise the squeeze-out right to purchase the shares of minority shareholders.

Once the majority shareholder becomes eligible to squeeze-out the minority shareholders, the minority shareholders will have the right to put their shares to the majority shareholder within three months. If there are any minority shares not sold during the three-month period, the majority shareholder can call the shares.

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13. What is the waiting or notification period that must be observed before completing a business combination?

Depending on the M&A transaction and target, there are three regulators or types of regulators that can have jurisdiction over the transaction: (i) the Competition Authority’s approval would be necessary if the turnover of the target and/or parties to the transaction exceed certain thresholds, and the Authority’s approval generally takes three to four weeks, unless it requires additional information; (ii) the Capital Markets Board will be involved where the target is a public company (and although acquiring a public company does not require Capital Markets Board approval per se, the Board’s jurisdiction inevitably extends to the transactions in tender offers, post-closing mergers or any concept that requires the protection of the minority investors); and (iii) if the sector of the target company is regulated, it is highly likely that the sector regulator’s approval would be necessary for the transaction. Examples are the Banking Regulation and Supervision Agency for banks and certain other financial institutions; the Capital Markets Board for brokerage houses, portfolio management companies and other companies active in the capital markets; the Treasury for insurance and pension companies; the Energy Market Regulatory Authority for energy distribution and generation companies and the Radio and Television Supreme Council for broadcasting companies. The approval timeline if a sector-specific regulator is involved depends on the features and size of the transaction; in any case, it will be a minimum two to three weeks.

14. Are there any industry-specific rules that apply to the company being acquired?

Regulators of specific sectors require the company being acquired to have certain qualifications, such as a minimum capital requirement and specific corporate formation.

In addition to the target company requirements, foreign investors are also required to have some qualifications and can have limitations on investing in certain sectors. In some strategic or regulated sectors, such as mining, electricity, aviation industries, private education and mass media, the share of foreign investment or activities of foreign investors can be limited.

There are also several restrictions on foreign ownership of real estate and vessels, which complicate certain investments.

15. Are cross-border transactions subject to certain special legal requirements?

Turkey’s Foreign Investments Law explicitly states that foreign and domestic investors will be treated equally unless international agreements and relevant laws specify otherwise. Hence, a business can be established in Turkey irrespective of nationality or place of residence. In some strategic or regulated sectors, such as mining, electricity, aviation industries, private education and mass media, however, the share of foreign investment or activities of foreign investors can be limited.


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There are no pre-entry or pre-establishment screening requirements on foreign capital companies or their branches, unless the foreign company is to operate in a regulated sector, such as banking, capital markets and insurance. Establishing branches or representative offices of foreign banks are subject to the permission of the Banking Regulatory and Supervision Agency. In the same way, branches of foreign insurance companies are subject to the permission of the Treasury. For non-regulated companies, however, only the establishment of a liaison office requires the Ministry of Economy’s permission.

In addition to the general principle allowing foreign investors to invest freely in Turkey, the Foreign Investments Law also grants foreign investors the right to transfer their funds freely.

Acquisition of real property and rights in remUnder recent amendments to Article 35 of the Deed Law, natural persons with foreign nationality who are citizens of countries designated by the Council of Ministers, can purchase real estate property and acquire limited rights in rem subject to (i) legal restrictions, (ii) bilateral international relationships and (iii) events requiring action deemed necessary in the public interest.

Foreign legal entities established in a foreign country under their local laws can only own real estate property and have limited rights in rem within the scope of special provisions of Turkish law, including the Petroleum Law, Tourism Incentive Law and Industrial Area Law.

Under Article 36 of the Deed Law, Turkish companies with foreign capital, in which persons with foreign nationality or foreign companies (i) own shares of 50 per cent or more or (ii) have the right to appoint/dismiss persons with management rights, can acquire and use real estate property or limited rights in rem to carry out the activities stated in the companies’ articles of association.

The same property rights apply where companies with foreign capital become direct/indirect shareholders of a company incorporated in Turkey, and own 50 per cent or more of the company’s shares.

If the real estate property is in a private security zone, a foreign entity’s acquisition of ownership in real estate property interests must be approved by the city’s Governorship in the location of the real estate property. Similarly, where real estate property is in a military forbidden zone, military security zone or a similarly designated region, the Army General Staff or responsible deputies must approve an acquisition by a foreign entity.

16. How will the labour regulations in your jurisdiction affect the new employment relationships?

The Labour Code No. 4857 (the “Labour Code”) is the principal legal act governing employment relations.

The Turkish Code of Obligations No. 6098, which came into force on July 1, 2012 (the “Code of Obligations”), also governs certain aspects of employment relations. Although the main principles in the recently repealed previous code are maintained, the Code of Obligations has introduced many new labour-related provisions, e.g., release, non-competition, bonuses and general terms and conditions.

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Most employment relationships fall within the Labour Code, which covers all employment relationships except those to which the Code of Obligations applies, unless there is lex specialis such as the Maritime Labour Code and Press Labour Code. International treaties, the Turkish Constitution, Turkish Civil Code No. 4721, Turkish Commercial Code No. 6102 and various other laws governing fields of employment also regulate certain employment relationships. Employment agreements, workplace regulations and collective bargaining agreements are also sources of employment law.

Furthermore, the Law on Occupational Health and Safety introduced the concept of occupational health and safety into Turkish legislation for the first time, replacing provisions of the Labour Code.

As the main regulatory instrument concerning health and safety in the workplace, the Law on Occupational Health and Safety scope of application applies to employers of all types of public and private work places. Employers’ liability, comprises taking necessary measures to provide for the health and safety of employees; to supervise whether these measures are effectively executed; to provide education and training to employees on health and safety issues in the workplace and to carry out risk assessment. This law foresees health and safety regulations per the number of employees in a work place (more or less than 50 employees) and per hazard level of the work done in the workplace (less hazardous workplace, hazardous workplace or highly hazardous workplaces).

In terms of M&A transactions, the target company’s employment aspects are closely reviewed during due diligence exercises in line with the applicable laws mentioned above and necessary provisions (e.g., protective provisions, post or pre-completion covenants) introduced to the transaction documents. The M&A transaction itself cannot be considered a cause for terminating the target company’s existing employees.

17. Have there been any recent proposals for reforms or regulatory changes that will impact M&A activity?

No. Recently the base laws applicable to M&A transactions, such as the Turkish Commercial Code, Turkish Code of Obligations and Capital Markets Law, have been replaced in their entirety, although the Capital Markets Board’s secondary legislation is under revision.

1 These conditions are the following:

• the sale price is received before the end of the second calendar year following the year on which the sale occurred;

• that portion of the gain benefiting from the exemption is maintained in a special reserve account on the balance sheet for five years; and

• the selling company’s business is not the trading of securities.


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S EREN KURŞUN Partner, Esin Attorney Partnership, a member firm of Baker & McKenzie International E [email protected] www.bakermckenzie.com/turkeyA Ebulula Mardin Cad., Gül Sok. No. 2 Maya Park Tower 2, Akatlar-Beşiktaş 34335 Istanbul, TurkeyT +90 212 376 64 00

ASLI YIĞIT Partner, Esin Attorney Partnership, a member firm of Baker & McKenzie InternationalE [email protected] www.bakermckenzie.com/turkeyA Ebulula Mardin Cad., Gül Sok. No. 2 Maya Park Tower 2, Akatlar-Beşiktaş 34335 Istanbul, TurkeyT +90 212 376 64 00

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