In 2021, despite the ongoing COVID-19 pandemic, Turkish M&A activity continued to build momentum, reaching a record number of 390 transactions growing by 12% with a total deal volume of USD10.1 billion and driven by the mega deals sealed by financial investors.

In 2021, small and mid-market dominated the deal flow with an all-time high number of start-up deals and e-commerce transactions making a remarkable contribution as the pandemic acted as a catalyst for digitalisation.

The majority of deals were driven by venture capital firms and angel investors, comprising 56% of the total deal number.

Foreign investors maintained their confidence in the Turkish market; 86 deals, with a combined deal value of USD5.9 billion contributed to 58% of total deal value. Western investors were once again responsible for the highest number of deals among foreign investors.

Financial investor activity reached a record level of 245 transactions with USD4.2 billion deal value.

In 2021, technology and internet and mobile continued to be on investors’ radar. E-commerce boosted total Turkish deal volume with USD2.9 billion worth of deals realised through 17 transactions and comprised 29% of the total annual deal volume. Investors’ interest in gaming is also worth noting. The COVID-19 pandemic, and the related lockdowns, catalysed the growth of the gaming industry and subsequent investor demand. There were 38 deals in gaming sector with a combined deal value of USD276 million. The manufacturing (33), financial services (30) and energy (26) sectors also continued to draw strong interest from investors.

The most common technique for acquiring a company in Turkey is share acquisition. Asset transfers are also used for acquisitions but are not common.

In asset transfers, if an entire business is transferred – including “assets” and “liabilities” – and that transfer is notified to the creditors of the transferred business, and where the purchaser becomes responsible for the liabilities of the transferred business, the seller continues to be jointly liable, together with the purchaser, for two years, starting from the date of the notice or announcement.

Thereafter, the entire liability is shifted to the purchaser. Such a prescribed regime for pre-closing liabilities often requires parties to develop specific indemnity regimes and structures in asset transfers, depending on the particulars of the transaction as well as the assets and liabilities in question. The tax efficiency of asset-transfer transactions primarily discourages parties from following this route.

Depending on the sector and the investment, Turkish M&A transactions may trigger various filing and approval requirements before different public authorities, such as antitrust filings or filings before the Energy Market Regulatory Authority of Turkey (EMRA), the Banking Regulatory and Supervision Agency (BRSA), the Ministry of Treasury and Finance (the Treasury) or the Capital Markets Board of Turkey (the CMB).

The major regulatory filing requirements in Turkey are, briefly, as follows:

• mergers and acquisitions leading to a permanent change of control are subject to the approval of the Turkish Competition Authority if certain turnover thresholds are exceeded (see 2.4 Antitrust Regulations);
• direct and indirect share transfers above 10% (5% for public companies) in Turkish companies holding licences, for which tariffs are statutorily regulated in the electricity and natural gas markets or any transaction resulting in the change of control of such licence-holders regardless of the percentage of shares transferred, are subject to the prior approval of the EMRA;
• financial institutions operating under a BRSA licence, such as banks, financial leasing companies and asset management companies, are subject to the BRSA regulations – direct and indirect share transfers exceeding certain thresholds in these financial institutions are subject to the prior approval of the BRSA;
• certain entities, such as intermediary institutions and portfolio management companies, are subject to the CMB regulations, and the CMB’s prior approval is required for direct and indirect share transfers exceeding certain thresholds; and
• insurance, pension and reassurance companies operating under a Treasury licence are subject to the Treasury regulations, and prior approval from the Treasury is required for direct and indirect share transfers exceeding certain thresholds.

There are no general limits (statutory, de facto, or otherwise) on foreign ownership or control, and foreign investors are treated in the same way as domestic investors. However, certain limitations are applicable to certain sectors. For instance, under the broadcasting legislation, foreign shareholders cannot hold more than 50% of the paid-in share capital of a broadcasting company. In addition, special regulatory requirements apply to foreign-owned interests in the petroleum, mining, broadcasting, maritime transportation and aviation sectors.

Real estate acquisitions are also subject to certain screening and regulatory approvals, which vary depending on the acquirer, location and/or its proximity to security sensitive areas (eg, military zones or special security zones).

Under Turkish law, mergers and acquisitions leading to a permanent change of control require antitrust filing to the Turkish Competition Authority if the following thresholds, as amended in March 2022 (note that these amendments will enter into force on 4 May 2022), are exceeded:

• the total turnovers of the transaction parties in Turkey exceed TRY750 million and the turnovers of at least two of the transaction parties in Turkey each exceed TRY250 million; or
• the turnover in Turkey for at least one of the transaction parties in the merger transactions and the target in acquisition transactions exceeds TRY250 million, and at least one of the other transaction parties has a global turnover exceeding TRY3 billion.

Furthermore, according to Communiqué (No 2022/2) Amending the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorisation of the Competition Board (No 2010/4) (the “Amendment Communiqué”), transactions regarding the acquisition of technology undertakings operating in the Turkish geographical market or having R&D activities or providing services to users in Turkey, the aforementioned thresholds of TRY250 million shall not be sought. For clarity, the rest of the turnovers of other parties to the transaction shall still exceed the relevant thresholds for a filing to be triggered. The Amendment Communiqué defines “technology undertakings” as “[u]ndertakings or related assets operating in the fields of digital platforms, software and video game development, financial technologies, biotechnology, pharmacology, agriculture chemicals and health technologies”. Due to this broad definition of technology undertakings, it is expected that more and more acquisition transactions will trigger a merger control filing in Turkey.

For the purposes of calculating the relevant turnover thresholds, a company will be deemed to “control” another company if it:

• holds more than 50% of the share capital or financial assets of that company;
• holds more than 50% of the voting rights of that company;
• has the right to appoint more than 50% of the members of that company’s board of directors or other representative bodies; or
• has the right to manage the business of that company.

There are special rules for calculating the threshold in certain sectors (eg, banking).

In Turkey, the Turkish Labour Code (Law No 4857) (the Labour Code) regulates the relationship between an employee and an employer. Although the Labour Code regulates employment matters in the transfer of a workplace, special provisions of the Turkish Commercial Code (Law No 6102) (the TCC) are applicable under certain circumstances.

In the case of a business transfer, employees are entitled to object to the transfer of their existing employment relationships. In such cases, the relevant employment relationship will terminate and the employee will be entitled to the benefits set forth under the Labour Code (eg, severance payment).

Furthermore, if the employment relationship terminates, the purchaser and the seller will be jointly and severally liable for the unpaid receivables of the employee that had arisen prior to the transaction, and the receivables that will become due upon termination. Employees can claim all rights and receivables accrued but unpaid at the date of termination (such as unused annual leave, unpaid salary, bonuses and other side benefits and rights). Similar principles are also applicable in merger transactions.

The purchasers should pay particular attention to employment matters in M&A transactions if the employees of the target are unionised and have collective bargaining agreements in place.

There is no national security review of acquisition transactions in Turkey.

The most significant legal developments in Turkey in the recent years relating to M&A include the following.

On 13 September 2018, Executive Order No 85 (the Executive Order) was published, amending Decree No 32 on the Protection of the Value of the Turkish Currency (the Decree). With the Executive Order, Turkey has restricted the ability to select a foreign currency in certain contracts between Turkish residents (as described under the Decree). The authorities have adopted a comprehensive approach by giving these restrictions (the FX Restrictions) a retroactive effect for amending existing contracts.

The Executive Order also indicated that exemptions would be issued by the Treasury in respect of the restrictions. The Treasury has restructured the FX Restrictions and announced the exemptions with the Communiqué on the Amendment to the Communiqué (numbered 2008-32/34) on the Decree (the Communiqué), which also includes repricing rules for contracts that fall outside the scope of exemptions. In April 2022, the said Communiqué has been amended to assert that contracts between Turkish residents concerning the sale of movables (except for the sale of vehicles) can envisage payments to be made in foreign currency; however, the actual payment needs to be made and received in Turkish lira.

The Communiqué introduced various exemptions for foreigners, companies in Turkey that are controlled by foreigners, and specific types of transactions. In general, M&A deals or share-purchase agreements are not directly captured by the FX Restrictions, but investors should be mindful of these critical rules, as they may affect the target’s business since the target’s main counterparties (customers/vendors) can be subject to these restrictions.

Prior to the changes introduced in the Licensing Regulation on the Energy Market in 2021, EMRA approval had to be sought for (i) transfer of shares representing 10% or more (5% or more for public companies) of the share capital of the licence-holder, or (ii) any transaction that would result in a change of control over the licence-holder. Pursuant to the amendments, approval of EMRA with regard to the share transfers exceeding the aforementioned thresholds and resulting in any change of control is required only for licence-holders whose tariffs are statutorily regulated.

On 14 July 2021 the Ministry of Trade published its Green Deal Action Plan. The plan, inter alia, aims to regulate green financing working in connection with the BRSA and the CMB. Further, on 7 October 2021, the Paris Agreement was ratified.

The CMB published the new Squeeze-Out and Sell-out Rights Communiqué (II-27.3) (the Squeeze-Out Communiqué) in the Official Gazette dated 31 December 2020, numbered 31351. Under the new Communiqué, the scope of the application of the squeeze-out and sell-out rights has been restricted by the provisions setting out that such rights will not be triggered in the event of share purchases by existing shareholders in capital-increase processes where the pre-emptive rights of shareholders are not restricted, or in cases of inheritance, share extinguishment or suspension of voting rights. Also, unlike the previous communiqué, the new Squeeze-Out Communiqué sets forth the same formula for the calculation of both the squeeze-out and sell-out price and, in an effort to mitigate the unfavourable impacts of the COVID-19 pandemic and similar extraordinary circumstances, allows the CMB not to take into account the time periods where the economy or the relevant sector is impacted by extraordinary developments in the calculation of the squeeze-out and sell-out price (see 6.10 Squeeze-Out Mechanisms). Also, under the new communiqué, if squeeze-out and sell-out rights occur simultaneously with the acquisition of the management control, the acquirers will not be obliged to launch a mandatory tender-offer process.

In October 2021, the CMB amended Tender Offer Communiqué (II-26.1) (the Tender Offer Communiqué). Accordingly:

• the acquirer’s obligation to make a mandatory tender offer is limited to the shareholders who were holding shares in the company at the time of disclosure of the acquisition of the management control to the public;
• certain events that were previously regulated as eligible for exemption from a mandatory tender offer are excluded entirely from the mandatory tender-offer requirement;
• the acquisition of management control arising from inheritance or allocation of the matrimonial property are regulated as eligible cases for exemption from a mandatory tender-offer requirement;
• the unintended acquisition of management which may have arisen due to the suspension of voting rights of other shareholders, share capital decreases by share redemption, share buy-backs and similar reasons, and the acquisition of management control triggering the squeeze-out and sell-out rights will no longer trigger the mandatory tender-offer obligation of the acquirer;
• the mandatory tender-offer price will be according to the new rules under the Tender Offer Communiqué and the CMB will be entitled to suspend the mandatory tender offer or recalculate the tender-offer price if extraordinary developments, as in the case of the COVID-19 pandemic, impacts the economy or the relevant sector; and
• no interest will accrue on the tender-offer price if the bidder has no fault in failing to launch the mandatory tender offer in a timely manner and, for purchase prices denominated in Turkish lira, the current reference rate, the Turkish Lira Interbank Offer Rate (TRLIBOR), will be replaced by the TLREF, the Turkish Lira Overnight Reference Rate.

See 4.2 Material Shareholding Disclosure Threshold to 4.6 Transparency for relevant information.

Disclosure of material events for publicly listed companies is primarily regulated by the CMB Disclosure Communiqué (II-15.1) (the Disclosure Communiqué), under which the CMB makes a distinction between “insider information” and “continuous information”. Rather than identifying each material event requiring disclosure in the Disclosure Communiqué, the CMB leaves specific disclosure decisions regarding insider information to the companies’ individual discretion, on a case-by-case basis.

The Disclosure Communiqué defines “insider information” as information or any event that is not disclosed to the public that may affect investors’ investment decisions, or is likely to affect the value or price of the shares or relevant capital markets instruments of the issuer.

If any inside information comes to the attention of any persons subject to certain criteria set forth under the Disclosure Communiqué, public disclosure is required regarding that information. Publicly listed companies may suspend the disclosure of inside information by taking full responsibility for any non-disclosure in order to protect their legitimate interests, provided that:

• that suspension does not mislead investors;
• the company is able to keep any related inside information confidential; and
• the board of directors resolves on the necessary precautions in order to protect the interests of the issuers and not to mislead investors.

Once the suspension conditions are eliminated, the issuer company must disclose the inside information on the Public Disclosure Platform (see 7.2 Type of Disclosure Required).

Information with respect to certain changes in the share ownership or management control in a company is considered as “continuous information”. Accordingly, a person or persons acting together directly or indirectly acquire or transfer 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% or 95% of the issued share capital or voting rights of a publicly held company are required to disclose such acquisitions on the Public Disclosure Platform. The disclosure is made automatically by the Central Securities Depository of Turkey for direct share transfers, whereas the indirect transfers must be disclosed by the relevant real persons and legal entities and persons acting together with them.

Furthermore, persons with managerial responsibility in a publicly listed company or persons with close relations to any such persons must publicly disclose their transactions relating to the shares of that company as of the date when the aggregate value of the transactions performed by those persons reaches TRY1 million in one calendar year, and disclose their transactions relating to capital market instruments other than publicly offered shares of that company as of the date when the aggregate value of the transactions performed by those persons exceeds TRY1 million in one calendar year.

In addition to the aforementioned disclosure obligations under the Disclosure Communiqué, pursuant to new Article 27 of the Share Communiqué (VII-128.1), it is necessary to submit a share sale information form to the CMB’s prior approval and publicly disclose that form, if shareholders who directly hold more than 20% of the shares in the listed company, either alone or together with the persons acting together with it, or who hold privileged shares allowing them to appoint or nominate at least one of the company directors, sell shares exceeding 10% of the share capital of a listed company within any 12-month period. Moreover, the total nominal value of the shares that will be sold per day under the share sale information form cannot exceed 10% of the total nominal value of the shares that are within the scope of the share sale information form.

Companies must make necessary updates within two business days in respect of any changes relating to the general information on the company disclosed on the Public Disclosure Platform. The Central Registry Agency is responsible for updating the shareholding chart indicating a publicly listed company’s real person and legal entity shareholders who hold directly 5% or more of the shares or voting rights of that publicly listed company, in the case of any changes. Accordingly, acquirer information is publicly disclosed if the shareholding/acquisition percentage is exceeded.

Dealings in derivatives are allowed in Turkey and regulated under the Communiqué on Principles Regarding Investment Services, Activities and Ancillary Services (III-37.1). Regardless of their market place, dealings in derivatives must be mediated by authorised investment firms, since derivatives are capital markets’ instruments, and their transactions fall under capital markets’ services that can be undertaken only by authorised investment institutions, pursuant to the Capital Markets Law.

Communiqué No III-37.1 provides an exemption to this requirement, stating that, if a derivative trading is performed by and between real and/or legal persons in such a manner that it cannot be considered as commercial or professional activity, it can be undertaken without the intermediation of an investment firm.

There are no specific disclosure obligations for derivative transactions, except those regulated under Article 11 of the Disclosure Communiqué. Accordingly, persons with managerial responsibility and the principal shareholders of an issuing company must disclose the following transactions:

• all transactions regarding the issuer’s securities (other than its shares offered to the public), provided that the total value of the transactions executed within a calendar year exceeds TRY1 million; and
• all transactions relating to shares and other securities, provided that the total value of the transactions executed within a calendar year is TRY1 million or higher.

There is no regulation that obliges the shareholders to disclose the purpose of their acquisition or their intention regarding control of the company.

However, the CMB’s Tender Offer Communiqué (II.26.1) (the Tender Offer Communiqué) requires the offeror to make a disclosure of material actions planned for the company after the mandatory (or voluntary) tender offer is completed.

Under Turkish law, there is no regulation imposing disclosure for deals in privately held companies. However, the Disclosure Communiqué should be observed for publicly held companies. It does not specifically set forth at what stage a target is required to disclose a deal. In principle, any information or event that may affect investors’ investment decisions or the value of the shares must be disclosed. 

In practice, the deals are disclosed when the likelihood of reaching a definitive agreement reaches a level that might affect the investors’ decisions or the value of the shares.

Generally, publicly held companies in Turkey follow the legal disclosure requirements set forth under the Disclosure Communiqué.

The scope of due diligence for a deal varies according to the scope of activity of the target company. Certain aspects are common for every company, such as its corporate status (constitutional documents, shareholder records, general assembly and board resolutions, etc), commercial and financial arrangements/agreements, employee relationships, intellectual property, real estate and litigation.

However, depending on the target company’s sector and commercial activities, the scope of legal due diligence may be expanded significantly in relation to licences, authorisations and permits. Apart from legal due diligence, it is also common for a purchaser to seek due diligence in relation to the target company’s financial, tax, technical/operational, and environmental status. In general, the scope of the legal due diligence has not been significantly impacted by the pandemic. Nevertheless, since the beginning of the pandemic, the relevant advisers/deal teams are frequently required to check whether the targets implement short-time working practices or any extraordinary business measures due to the pandemic, and whether the target is compliant with the COVID-19 rules and restrictions, notably with the restriction on termination of employment contracts and dividend distribution. Also, since the pandemic has impacted several sectors unfavourably, the purchasers have been more inclined initially to conduct a financial due diligence, and possibly seek to explore a potential restructuring of the target’s debts, before proceeding to other due diligence items. 

In Turkish markets, it is common practice for the majority of shares to be owned or controlled by a single principal shareholder. Therefore, deal negotiations are often conducted with a principal controlling shareholder, and it is not a general practice in Turkey to begin with or to have a standstill agreement.

Although exclusivity is often agreed at the outset of the negotiations, the use of standstill agreements is not common practice in the Turkish market.

The definitive agreement executed with the controlling shareholder is not the instrument to document the tender offer terms.

The Tender Offer Communiqué requires both voluntary and mandatory tender-offer terms and conditions to be fully disclosed by using a standard tender-offer form, which must be filled out in line with the Tender Offer Communique and contain all terms and conditions in relation to the offer (including price, timing, the undertaking’s existence of funds, ancillary disclosures).

The offeror must seek the CMB’s prior approval on the standard offer form and its contents before commencing the offer process.

The closing of an acquisition transaction may vary according to factors such as the size and nature of the target (eg, privately or publicly held), assets, percentage of shareholding sold, number of parties involved, existing/remaining shareholders, antitrust and other regulatory approvals, third-party consents, and ancillary commercial arrangements (eg, transition services or off-take-related arrangements).

Taking these factors into account, the closing of an acquisition usually requires between three and six months.

The governmental measures taken to address the pandemic did not cause significant delays or impediments to the deal-closing process.

The purchaser of shares in a publicly held company will be required to conduct a mandatory tender offer if a change of control occurs. The method for calculating the offer price differs, depending on whether or not the company is listed, whether the change of control has occurred in a direct or indirect manner, and whether there are different share groups.

The Tender Offer Communiqué imposes a mandatory tender offer threshold for publicly held companies. Under the Tender Offer Communiqué, if any party or parties acting together acquire management control of a publicly held company, the party or parties are required to make an offer to the other shareholders to buy their shares, and to apply to the CMB for the approval of the tender offer within six business days following the acquisition of the shares and voting rights granting management control, and to commence the offer transactions within two months following the acquisition. Only the shareholders who were holding shares in the target company on the disclosure date of the acquisition of management control can participate in the tender offer process.

The acquisition of management control occurs when a person – individually or acting together with others – owns, directly or indirectly, at least 50% of the voting rights, or, regardless of any voting rights owned directly or indirectly, acquires privileged shares that grant the power to elect directors constituting the majority of the board of directors or to nominate that number of directors for election at the general assembly of shareholders. When management control is indirectly acquired through acquisition of management control over the target’s controlling shareholder, the shares held by the controlling shareholder and entities acting together with it are both taken into account when determining whether management control at target level is (indirectly) being acquired.

Exemptions

The CMB may grant an exemption from the mandatory offer obligation under certain circumstances, including, but not limited to:

• the acquisition of management control as a consequence of a mandatory shareholding structure change in order to reinforce the financial standing of the company;
• the acquisition of management control in the controlling shareholder of the company without the intent to acquire management control in the company; and
• the acquisition of shares by a bank as a result of the enforcement of security over shares.

The Tender Offer Communique also sets forth the circumstances under which an obligation to make a mandatory tender offer is not triggered, including:

• if management control is acquired upon a voluntary tender offer for 100% of the shares of all shareholders;
• if management control is acquired due to circumstances that are beyond the acquiring shareholders’ control (eg, share privileges of other shareholders ceasing due to an amendment to company’s articles, buy-backs by the target, etc);
• if management control is acquired as a result of the existing shareholders acquiring shares via a capital increase where the shareholders’ pre-emption rights have not been restricted (prior to the amendments introduced in 2021, this used to be a case where the CMB could grant exemption from mandatory offer);
• if the change of management control also triggers the squeeze-out and sell-out rights;
• without an acquisition of shares, if management control is acquired by a written agreement that is approved by the general assembly, and the shareholders who cast and register their dissenting votes are granted exit rights in accordance with the relevant CMB legislation;
• if shares are acquired pursuant to a written agreement entered among persons presumed to be acting together or who have declared that they act together and made a tender offer to the target company based on the declaration;
• if some of the shares held by the controlling shareholder of the company are acquired in a way that gives 50% or less of the voting rights in the company to the acquirer, with a written agreement executed between the acquirer and the controlling shareholder for the purpose of sharing the management control of the company among them on an equal basis or to a lesser extent for the acquirer, this exception is limited to the sharing of the management control for the first time and applies to the share acquisitions in the context of a capital increase as well as the transfer of the shares of the controlling shareholder; and
• if a shareholder with management control loses but then re-acquires that control before the acquisition of management control by a third party.

Where a change of control event does not trigger a mandatory offer process being initiated, within two business days following acquisition of management control, the persons acquiring management control over the target shall make a public disclosure noting the fact that management control has been acquired and the reasons why a mandatory offer will not be made.

The main practice in Turkey is to use cash consideration. In private transactions, non-cash considerations (eg, shares and securities) are preferred from time to time, depending on the transaction and commercial mechanics.

In the case of mandatory tender offers, cash is the common method for consideration, although, subject to certain conditions, non-cash consideration in the form of shares or certain securities may be used if the selling shareholders agree. There are various formalities and requirements that need to be satisfied in order to pay out the offer price through non-cash considerations.

Earn-out and deferred consideration mechanisms, which allow the acquirers to calculate and/or pay a portion of the acquisition price after the closing date, are commonly used to bridge the valuation gaps in deals in Turkey. Moreover, escrow arrangements whereby the parties agree to deposit a certain amount of the acquisition price to an escrow account are sometimes coupled with earn-out and deferred consideration mechanisms or are employed to ensure reimbursement of potential indemnity claims of the acquirer.

The Tender Offer Communiqué imposes various rules on the tender offer process. For instance, the mandatory tender offer price cannot be less than the arithmetical average of the daily adjusted weighted average share price of the last six months prior to the public disclosure of the agreement regarding the sale of shares, or the highest price paid for the same group of shares of the target company within the last six months before the tender offer.

The Communiqué also specifies how the tender offer price will be determined in the case of an indirect change in the management control of the target company and, if there are multiple share groups, how the tender offer price will be determined for shares other than the ones whose transfer creates the tender offer requirement.

Furthermore, in the case of a mandatory tender offer, the Tender Offer Communiqué requires the offeror to apply to the CMB within six business days of the acquisition of the shares and voting rights granting management control, and to commence the offer transactions within two months of the acquisition.

If the mandatory tender offer process is not initiated within two months (or if it is extended until the end of the requested extension), the voting rights of those who are in violation of their mandatory offer obligations will automatically be suspended and those shareholders will be prevented from voting at the general assembly until the completion of the tender offer process, unless the CMB determines otherwise. Furthermore, those shareholders will be subject to an administrative fine.

The Tender Offer Communiqué also provides detailed rules in relation to the voluntary tender offer process. For instance, voluntary tender offers may be made for a limited number of shares in a specific class of shares. The offer price in voluntary tender offers may be increased until the day before the expiry of the offer period, subject to certain conditions.

For mandatory tender offers, the offer must be made for all of the remaining other shareholders’ shares as of the date when acquisition of management control was publicly disclosed. The shareholders of a publicly listed company who may be eligible for the mandatory offer will be determined using information from Turkey’s Central Securities Depository.

The Tender Offer Communiqué requires funding to be available and ready for payment at the outset of the offer, and even requires disclosure of the source of funding in the standard tender form. Accordingly, making the offer conditional to obtaining financing is not possible as per the Tender Offer Communiqué.

For private deals, the parties have full flexibility and discretion to agree on whether to have the availability of acquisition financing as a condition precedent.

Recent practice shows that down-payments and break-up fees are becoming more common in order to secure the deal. Non-solicitation/no-shop clauses are also customary.

There have not been any changes that have impacted the length of interim periods during the pandemic. However, the drafting technique for force majeure and materially adverse change clauses has changed to exclude the pandemic from the scope of these clauses and, sometimes even with a specific reference to COVID-19, in an effort to mitigate the risk of delays or failures in closing the transaction.

The TCC provides minority protection rules. However, such minority rights are not sufficient to grant notable governance rights and benefits to minority shareholders. There are various methods to grant governance rights to minority shareholders, at either board or shareholder level.

Regardless of the method chosen, it is common practice to have such governance rights incorporated into the articles of association of the company, to support the enforceability of such rights.

The creation of share classes (alphabet stock), the granting of board nomination rights or veto or approval rights at board and/or shareholder level, and increasing the number of votes per a specific class of share are common methods to assert rights in the governance of the company.

Special care and diligence are needed in the creating and implementing of an effective governance structure in publicly held companies in order to comply with the requirements and restrictions of CMB legislation.

According to the provisions of the TCC, voting by proxy options in general assemblies can be separated into two groups: ordinary representation and depositor representation.

An ordinary representative is a shareholder or a third person appointed to represent a shareholder or more than one shareholder. A depositor representative, however, is a person with the delegated power to vote on general assemblies, and who receives instruction on how to vote on agenda items. A depositor representative can only be an intermediary agency, a portfolio management company, a pledgee or other persons or institutions authorised to be the custodian of stocks under the legislation, and to whom the shares to be represented in the general assembly have been deposited. Proxy solicitation is also allowed for public companies up until the last three days before the date of the general assembly meeting.

The TCC grants the parent company holding at least 90% (directly or indirectly) of the shares and voting rights of a company a right to squeeze out the minority shareholders in the event that those shareholders obstruct the company’s operations, act in bad faith, create apparent distress on the company’s operations, or act recklessly.

Actions of minority shareholders that could lead to the aforementioned conditions are not specifically listed under the TCC. Therefore, the courts will determine whether or not such conditions have occurred, according to the circumstances of each case. In addition, the TCC elaborates on the details of the consideration to be paid to these minority shareholders in the event of a squeeze-out.

The TCC also allows the squeeze-out of the minority shareholder in a merger of two or more companies. Accordingly, the merger agreement to be signed between the merging companies can provide an option for the minority shareholders to exit the company or force them to exit the company with cash consideration instead of holding shares in the surviving entity. Such a merger agreement must be approved by the shareholders holding at least 90% (directly or indirectly) of the share capital of the company that will cease to exist.

In respect of public companies, a squeeze-out mechanism is regulated under the recently published Squeeze-Out Communiqué (II-27.3). Accordingly, if a purchaser or persons acting in concert with the purchaser obtain 98% or more of the voting rights of a public company, directly or indirectly, or acquire additional shares after reaching a 98% shareholding level, the minority shareholders of the target company will be entitled to sell-out rights against the controlling shareholder, and the controlling shareholder will be entitled to squeeze-out rights against the minority shareholders.

Under the Squeeze-Out Communiqué, the companies whose management control belongs to the real person and/or legal entity shareholders of the company are deemed to be acting in concert with the purchaser under the Squeeze-Out Communiqué, as well as the real persons and/or legal entities having the management control of the legal entity shareholders of the company and the corporations whose management control belongs to these persons.

The squeeze-out and sell-out price varies as to whether the relevant entity is a listed company or an unlisted company as follows:

• for companies listed on the Star Market (Yıldız Pazar) of Borsa Istanbul, the squeeze-out and sell-out price is the average of the arithmetic average of the daily corrected weighted average prices on the stock market for the last one month prior to the disclosure of the squeeze-out and sell-out rights, and the price determined in the valuation report for the relevant share group;
• for companies listed on other markets and platforms, the squeeze-out and sell-out price is the average of the arithmetic average of the daily corrected weighted average prices on the stock market for the last six months prior to the disclosure of the squeeze-out and sell-out rights, and the price determined for the valuation report for the relevant share group;
• for unlisted companies, it is the price determined in the valuation report for the relevant share group; and
• in the case that the acquisition of the controlling shareholder status simultaneously results a change in management control, and the mandatory tender offer price calculated under the mandatory tender-offer pricing rules is higher than the squeeze-out and sell-out price calculated as described above, that mandatory tender-offer price will be used as the squeeze-out and sell-out price.

The majority of Turkish companies do not have a dispersed ownership structure, and shares are concentrated and owned by a principal selling shareholder or group of shareholders acting together, who also control the management of the target company.

Accordingly, in practice, even in the case of publicly held companies, instead of initially launching voluntary tender offers and building stakes, bidders primarily prefer to initiate acquisition negotiations directly with the principal shareholder and then follow up the mandatory tender process to complete its acquisition process.

In bilateral deals, soft commitments are often given at the early stages of the transaction through memoranda of understanding (MoUs) or letters of intent, which are backed up by concrete exclusivity obligations. Different methods are followed in the case of auction sales, the process of which is mandated and imposed by the principal selling shareholder and administered by its financial advisers.

In any event, if the target is a publicly held company, the mandatory disclosure requirements should be observed.

The Disclosure Communiqué requires that any information or event which may, if not disclosed to the public, affect investors’ investment decisions or is likely to affect the value and price of the shares or relevant capital markets instruments of the issuer must be immediately disclosed (see 4.2 Material Shareholding Disclosure Threshold).

If a person or persons acting together directly or indirectly acquires or sells 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% or 95% of the issued share capital or voting rights of a publicly held company, such transaction must be disclosed on the Public Disclosure Platform (see 7.2 Type of Disclosure Required). The disclosure is made automatically by the Central Securities Depository of Turkey for direct share transfers, whereas the indirect transfers must be disclosed by the relevant real persons and legal entities and persons acting together with them by using a standard disclosure form.

The Tender Offer Communiqué regulates the disclosure requirements for voluntary and mandatory tender offers. All major stages of the offer process are disclosed via the Public Disclosure Platform. These stages include any event triggering the mandatory tender obligation, an application to the CMB for a tender process (either for exemption or to kick-start it), a decision of the CMB in relation to such an application, the announcement of a tender offer form approved by the CMB and the final shareholding structure upon completion of the offer process.

The details of the offer are disclosed using the standard offer form enclosed with the Tender Offer Communiqué, following the CMB’s approval of its content (eg, price, timing and other conditions).

See 4.2 Material Shareholding Disclosure Threshold for additional disclosure requirements under the Share Communiqué.

The disclosures for tender offers are made at various stages of the offer process. See 7.1 Making a Bid Public.

All publicly held companies are required to disclose their financial statements, explanatory notes, material events and all other disclosures through the Public Disclosure Platform, an electronic system that uses internet and electronic signature technologies. The system is operated and managed by Borsa Istanbul and enables all users to access both current and past notifications of a listed company, to obtain current announcements and up-to-date general information about listed companies in an open and timely manner, and to make basic comparisons among analyses of listed companies.

Disclosures regarding changes related to shareholding structure and management control, securities attached to shares and a company’s acquisition of its own shares must be made no later than 9am on the third business day following the occurrence of the event triggering the disclosure requirement.

The bidders in a tender-offer process are not required to produce or disclose financial statements during the offer process. However, the CMB is entitled to request any additional information from bidders during the offer process.

In any event, the CMB requires publicly held companies to disclose their financial information regularly, in accordance with the CMB standards.

Transaction documents do not have to be disclosed in full. Nonetheless, the CMB requires the bidders to submit the share-purchase agreement triggering the mandatory tender-offer obligation and the agreement executed with the intermediary institution underwriting the mandatory tender-offer process while submitting the standard tender form for the CMB’s review and approval.

In general, the directors have a duty of loyalty and a duty of care. Accordingly, directors are always expected to seek and prioritise the benefits and interests of the company exclusively over the benefits of share groups, shareholders and/or related parties of shareholders. Therefore, the directors must not allow their relationship with the shareholders who nominated them to interfere with their fiduciary duties to act in the way they consider most likely to promote the success of the company.

Turkish law does not provide any exception whereby the directors are allowed to represent or promote shareholders’ interests over the company’s interests. The TCC also provides a list of duties that cannot be delegated by the directors (eg, determining management organisation, the appointment of authorised signatories, supervision of acts of authorised signatories, managers and senior officers, etc).

It is not common for directors to establish special or ad hoc committees in business combinations, not even when directors have a conflict of interest, in which case they must refrain from voting on those matters of conflict.

Nonetheless, the CMB requires publicly held companies to establish certain mandatory committees (eg, audit committee, corporate governance committee, nomination committee and early risk-detection committee). Banks which are publicly held, however, are subject to a slightly different regime, due to the BRSA rules.

A business judgement rule is adopted under the TCC, whereby directors should not be held liable for the decisions they make in good faith and with due care within their scope of authority granted under the TCC and articles of association. However, in practice, there are no Turkish court precedents addressing the implementation of this rule.

Independent, outside advice given to directors in a business combination may include legal, business, accounting, financial and statistical advice.

Under the TCC, the directors are prohibited from participating in discussions of the issues concerning their external personal interests (ie, any interest that does not relate to the interests of the company) or external personal interests of their spouse, lineal heirs and descendants and relatives by blood and by marriage within the third degree which conflict with the interests of the company.

This prohibition would be applied whenever the duty of good faith requires a director not to participate in the discussions of the board (eg, cases where the interests of the nominating shareholder conflict with the interests of the company). Even if the conflict is not known by the directors, the director who has the conflict of interest must declare the conflict and not attend such discussions. Directors who breach the duty to avoid conflicts of interest are liable for damages, as are directors who know of the conflict but do not take the necessary precautions.

Although they have been tried in the past, hostile tender offers are not common in Turkey, as the shareholding structures of publicly held companies are not dispersed and the majority of the shareholding and management are often controlled by a single shareholder (or a group of shareholders acting together) at the board and shareholder level.

Challenging such a dual-level controlling position by stake-building through the acquisition of minority shares in the market or reaching agreements with minority shareholders might be very difficult, or even impossible in practice. In addition, hostile tender offers are not regulated under any specific legislation in Turkey.

Considering that hostile takeovers are not common, defensive measures that are common in other jurisdictions (eg, poison pills, staggered board, golden parachute, etc) are not developed in practice in Turkey.

This is not applicable in Turkey.

This is not applicable in Turkey.

In the case of a mandatory tender offer, the directors cannot object to the business combination. Likewise, in the case of a voluntary tender offer, directors are not entitled to object to the sale of the shares, except under certain specific circumstances.

In publicly held companies, the directors’ ability to “just say no” to share transfers depends on a variety of conditions. If the shares are bearer shares, the board cannot intervene or reject the transfer of the shares.

However, various rules apply in the case of registered shares. If the shares are non-listed registered shares and the articles of association of the target company condition the transfer of those registered shares on board approval, the board may reject the share transfer based on certain grounds specifically listed under the TCC and offer to purchase the relevant shares on behalf of the target, other shareholders or third persons.

If the shares are listed registered shares, the board may reject recognition of the shareholder status of the acquirer only if the articles of association impose a percentage limit per shareholder and the acquirer exceeds this limit through such an acquisition. The transfer of title and rights linked with the listed registered shares depends on whether the transaction is concluded at market (Borsa Istanbul) or off the market. Nonetheless, if the board does not reject the transfer of the listed registered shares within 20 days upon notice, the acquirer is automatically recognised as the shareholder of the target company.

In Turkey, arbitration is the common platform for dispute resolution in M&A deals, rather than court litigation. Parties often prefer international platforms such as the International Chamber of Commerce (ICC) and the London Court of International Arbitration (LCIA), but the Istanbul Arbitration Centre (ISTAC) has recently been promoted as an alternative platform for arbitration.

Depending on the survival periods agreed under the definitive agreements, warranty and indemnity claims are brought within two years, which is often regarded as sufficient time to observe and analyse the validity of warranties and undertakings given by the seller.

Sellers who had concluded share purchase agreements prior to the COVID-19 outbreak with a closing date scheduled for after the outbreak have had difficulties in running the target company in the ordinary course of business and consistent with past practice. This has led to them being at risk of breaching certain covenants under the share purchase agreement and encouraged share purchase agreement amendments and/or waiver letters being negotiated between the transaction parties. Even though there has not been any notable court or arbitral precedent touching upon the issue, this has proved the importance of paying particular attention to balancing the conflicting interests of the parties to respond to extraordinary economic circumstances, in particular regarding gap controls.

Given the limited power of statutory minority rights, shareholder activism is not an important force in Turkey, and there are no examples of shareholder activism defence mechanisms.

See 11.1 Shareholder Activism.

See 11.1 Shareholder Activism.