Laws and regulations
There is no specific law that exclusively regulates M&A transactions subjected to Turkish jurisdiction. Different types of M&A transactions are governed by a set of laws and regulations that are equally applied to both domestic investors and foreign investors. There are only a few restrictions, such as real estate acquisitions and special sector-related rules (please refer our explanations below).
The Turkish Code of Obligations (Türk Borçlar Kanunu, referred to as TBK), Turkish Commercial Code (Türk Ticaret Kanunu, referred to as TTK), Law on the Protection of Competition (Rekabetin Korunması Hakkında Kanun, referred to as RKHK), Capital Markets Law (Sermaye Piyasası Kanunu, referred to as SerPK), Turkish Labour Law (İş Kanunu, referred to as İşK), Corporate Tax Law (Kurumlar Vergisi Kanunu, referred to as KVK), Foreign Direct Investment Law (Doğrudan Yabancı Yatırım Kanunu, referred to as DYYK) and Trade Registry Regulation (Ticaret Sicil Yönetmeliği, referred to as TSY) are the primary laws and regulations that apply to M&A transactions.
In addition to the main laws and regulations, communiqués issued by the Capital Markets Board (Sermaye Piyasası Kurulu, referred to as SPK) and Competition Board (Rekabet Kurulu, referred to as RK), and the procedures issued by Istanbul Stock Exchange (Borsa İstanbul, referred to as BIST), regulate the M&A transactions of public companies.
Rules and requirements to be applied to the M&A transactions that require notification to and authorisation by the RK are stipulated by the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorisation of the Competition Board issued by the RK (Communiqué No: 2010-4).
Principles and procedures relating to public disclosure of information, events and developments that may affect the value or price of securities, or the investment decisions of investors are set by the Communiqué on Material Events Disclosure issued by the SPK (Communiqué No: II-15.1).
Procedures and principles as to public disclosure of information, events and developments that may affect the value or price of capital market instruments, or the investment decisions of investors of publicly held corporations, the shares of which are not publicly traded, are governed by the Communiqué on Material Events Disclosure Regarding Non-Publicly Traded Corporations issued by the SPK (Communiqué No: II-15.2).
Procedures and principles as to resolutions regarding material events and the exercise of appraisal rights arising from M&A transactions are set by the Communiqué on Common Principles Regarding Significant Transactions and Appraisal Right issued by the SPK (Communiqué No: II-23.1).
Procedures and principles to comply with the merger and demerger transactions in which at least one of the parties is a publicly held corporation are regulated by the Communiqué on Merger and Demerger issued by the SPK (Communiqué No: II-23.2).
Procedures and principles relating to voluntary and mandatory takeover bids in publicly held corporations are set by the Communiqué on Takeover Bids issued by the SPK (Communiqué No: II-26.1).
Principles and procedures relating to voting by proxy, proxy solicitation and/or voting agreement in general assembly meetings (also referred to as GAMs) of publicly held corporations are stipulated by the Communiqué on Voting by Proxy and Proxy Solicitation issued by the SPK (Communiqué No: II-30.1).
Principles and procedures relating to share sales transactions larger than TRY 3 million are set by the Wholesale Transactions Procedures and Principles issued by the Listing Department of the BIST (Procedure Code: 04.PRO.03).
Role of the RK on M&A transactions
M&A transactions between undertakings could provide various benefits, such as offering products at a lower cost, developing new products, or increasing the quality of products. On the other hand, such M&A transactions may carry the risk of impeding effective competition in the market, in particular by the creation or strengthening of a dominant position. Such M&A transactions that increase prices for consumers, reduce diversity and weaken innovation are prohibited by article 7 the RKHK. This is known as “significant impediment of effective competition” criteria (SIEC Test) .
The SIEC test, envisaged by article 7 of the RKHK, is the condition for M&A transactions that: cause permanent change in the control structures of the undertakings; need to be notified to the RK; and are required to obtain authorisation from the RK in order to be legally valid. Communiqué No: 2010-4 stipulates which transactions are deemed as an M&A transaction and subject to authorisation of the RK.
Pursuant to Communiqué No: 2010-4, transactions such as share transfers that do not lead to any change in the control structures of undertakings, or mergers and acquisitions between enterprises within the same economic integrity or in the same group companies, are not subject to notification requirements pursuant to the RKHK and Communiqué No: 2010-4.
In an M&A transaction as specified under article 5 of Communiqué No: 2010/4, the authorisation of the RK is required if: the total turnover of the transaction parties in Turkey exceeds TRY 100 million, and the turnover of at least two of the transaction parties in Turkey each exceeds TRY 30 million; or the asset or activity subject to acquisition in an acquisition transaction, and at least one of the parties of the transaction in merger transactions, have a turnover in Turkey exceeding TRY 30 million, and the other party to the transaction has a global turnover exceeding TRY 500 million.
M&A limitations for foreign investors
An example of different rules applying to foreign investors would be real estate acquisitions. Real estate acquisitions by a foreign investor may be subject to limitations and further procedural requirements in accordance with the relevant legislation, such as the Land Registry Law and reciprocity rules.
Some share transfer transactions in Turkey are subject to notification to and/or special authorisation/approval requirements by competent authorities, and some restriction rules apply to such share transfers. The SPK, RK, the Banking Regulation and Supervision Agency (Bankacılık Düzenleme ve Denetleme Kurumu, referred to as BDDK), the Energy Market Regulatory Authority (Enerji Piyasası Düzenleme Kurulu, referred to as EPDK), the Radio, Television Supreme Council (Radyo Televizyon Üst Kurulu, referred to as RTÜK) and the Ministry of Customs and Trade are some of competent administrative authorities in this regard.
The Turkish Banking Law also sets limits regarding share transfers. Share transfers exceeding certain thresholds as a percentage of total capital are subject the BDDK’s approval.
The Electricity Market Law, on the other hand, stipulates some exceptional rules for share transfers of renewable power generation facilities at certain thresholds. In case of non-compliance with rules for such share transfers, the EPDK has the authority to cancel the authorisations, certificates and licenses related to such activity.
Pursuant to the Law on Establishment of Radio and Television Enterprises and Their Media Services, share transfers of an incorporation to which a broadcasting licence has been granted shall be notified to the RTÜK. Before the transfer of a company or a merger, it is obligatory to obtain the permission of the RTÜK. Pursuant to article 19/1-f, the foreign capital share in a Turkish TV or radio broadcast company shall not exceed 50% of the paid-in capital. A foreign person may directly become a partner of a maximum of two media service providers. If foreign persons hold shares in companies that are shareholders of media service providers and become indirect partners of the broadcasters, the chair, the deputy chair, the majority of the Board of Executives and the general director of the broadcasting enterprises must be Turkish citizens, and the majority of the votes in the general assembly should belong to Turkish citizens.
Regarding insurance or reinsurance companies, share transfers that give shareholders the privilege to determine board members who can be effective in the audit and management of company, and share transfers exceeding certain thresholds as a percentage of total capital, are subject to the Undersecretaries of Treasury’s approval.
Share transfers in companies operating in pensions are subject to the Ministry of Treasury and Finance’s approval.
Share transfer transactions of banks, financial leasing companies, factoring companies, consumer financing and credit card services companies, asset management companies, insurance companies, holding companies established as joint-stock companies, companies operating foreign exchange offices, companies engaged in public warehouses, agricultural products licensed warehouse companies, commodity exchange companies, independent auditing companies, surveillance companies, technology development zone management companies, companies subject to the SerPK, and companies that are founders and operators of the free zone are all subject to approval of the Ministry of Customs and Trade, in case such transactions require amendments to their articles of association (also referred to as AoA), such as a share capital increase.
Role of the SPK
In mandatory tender offers, investors should follow the rules and principles set by Communiqués of the SPK.
With regard to mandatory tender offers, some of the key points are:
Pursuant to article 15 of Communiqué No: II-26.1, for listed companies, the mandatory tender offer price cannot be less than the arithmetical average of daily weighted average stock prices occurring during the period of six months prior to the date of disclosure to public of the agreement relating to sales of shares, and less than the highest price paid by the offeror for the same group of shares of the target within six months prior to the offer, also including direct share purchases leading to the tender offer.
In the case of an indirect change in control of the target, the tender offer price cannot be less than the highest of:
- the price specified in the assessment report prepared within the frame of regulations of the SPK;
- the highest price by the offeror in purchases of shares of the target within a period of six months prior to the date of public disclosure of the agreement if any, relating to the transfer of shares leading to the indirect change in control of the target; or
- if the shares of the target are traded on a stock exchange, the arithmetical average of daily weighted average stock prices occurring during the period of six months prior to the date of public disclosure of the agreement relating to the sales of shares.
Role of Public Disclosure Platforms
According to article 8/1 of Communiqué No: II-23.2, the matters listed below, in respect of mergers, shall be disclosed to the public: (i) at a Public Disclosure Platform (Kamuoyu Aydınlatma Platformu, referred to as KAP); (ii) on the corporate websites of the relevant corporations in cases where at least one of the parties of the transaction is a corporation (the shares of which are admitted to trading on the exchange); and (iii) on the websites of the SPK and of the relevant corporations, if any, for publicly held corporations (the shares of which are not admitted to trading on the exchange):
- resolution taken by the managing body with respect to the merger;
- application to the SPK regarding the merger transaction;
- execution of the opinion of an expert institution;
- execution of the contract on the merger plan; and
- preparation of the report on the merger.
Pursuant to article 8/2 of the same Communiqué, the documents listed below shall be disclosed to the public at least 30 days before the date of the GAM at which the merger transaction shall be approved: (i) at a KAP; (ii) on the corporate websites of the relevant corporations in cases where at least one of the parties to the transaction is a corporation (the shares of which are admitted to trading on the exchange); and (iii) on the websites of the SPK and the relevant corporations, if any, for publicly held corporations (the shares of which are not admitted to trading on the exchange):
- announcement text approved by the SPK;
- merger contract;
- merger report;
- financial reports of the last three years;
- expert institution report;
- estimated opening balance sheet after the merger;
- independent audit reports of the last three years, if any;
- interim financial statements, if any; and
- real estate appraisal reports, if any.
Disclosed information, as well as the documents listed above, shall be kept for at least five years on the corporate websites of the relevant corporations.
Single shareholder disclosure is necessary in case of a reduction in the number of shareholders to one.
Volume and value of transactions
After an inactive year in terms of M&A transactions, 2020 was a strong rebound year in which Turkey reached an all-time high in terms of the number of M&A transactions. In 2020, 304 transactions were closed in Turkey (233 transactions in 2019) and the deal volume increased by 3.7 billion USD compared to 2019, and reached up to 9 billion USD.
The fact that financial investors comprising 17% of the total deal volume in 2019 comprised 44% of the total deal volume in 2020 has a great importance in this increase. The two largest transactions made in 2020 comprised 40% of the total transaction volume. Compared to 2019, the ratio of foreign investors to total deal volume decreased by 13% to 51%. The sectors that attracted the most attention were the Internet & Mobile Services sector with 97 deals, followed by the Technology sector with 52 deals.
In terms of deal volume, the Telecommunications sector ranked first with 2.1 billion USD, followed by the Internet & Mobile Services sector with 2.0 billion USD. American-based game developer Zynga's takeover of Turkey-based Peak Games was the most important deal of 2020. The transaction, which was closed for 1.8 billion USD, took its place as the highest transaction recorded among Turkey-based start-ups.
After being unable to attract financial investors in 2019, Turkey started to recover due to the return of financial investors to the Turkish market, closing a unicorn deal for the first time in Turkey's M&A history, thanks to Turkey's strong start-up ecosystem. Start-ups comprised 44% of the total deal figure in 2020. At the same time, Turkey's successful response to the COVID-19 pandemic also had a positive impact on this increase.
Significant deals and highlights
The most important deal of 2020 was the acquisition of Turkish start-up, Peak Games, which was founded in 2010 and released its first game in 2015. This takeover, which was Turkey's first unicorn deal, was also the largest acquisition in the history of the American-based company Zynga. With this transaction, which took place in the Internet & Mobile Services sector, Zynga took over 100% of Peak Games in return for 1.8 billion USD.
Another transaction that deserved to be mentioned was the acquisition of 26% of Turkcell Communication Services by the Turkey Wealth Fund. This transaction, which took place for 1.8 billion USD, was the largest acquisition in Turkey in 2020. The Turkey Wealth Fund is a joint-stock company that was established in 2016 with the Law No. 6741, with the aim of creating value for the companies in its portfolio and to help companies in Turkey to grow regionally and globally and to create leading companies. The Turkey Wealth Fund, which owns 23 companies from eight different sectors in its portfolio, closed different M&A transactions with a total value of 953 million USD apart from said 1.8 billion USD deal in 2020. The other M&A transactions of the Turkey Wealth Fund, which was one of the most important actors of 2020 in terms of mergers and acquisitions, generally happened in the Financial Services sector. In 2020, 164 transactions were closed by financial investors, and 69% of the total volume of these transactions was made by the Turkey Wealth Fund.
Key developments
The most recent and significant regulations that affect M&A practice in Turkey are as follows:
- A change in the trade registry directive lifted the compulsory government representative attendance to GAMs for sole partnership companies. This change also introduced the lift of compulsory government representative attendance to merger-, acquisition- or split-up-related GAMs.
- Changes have also been made to Communiqué No: II-23.2; the definition of governance and a definition of management control has been added to the communiqué.
- Government-controlled publicly traded companies are excluded from certain provisions of the communiqué. The change is easing trade of government-controlled publicly traded companies.
- Restrictions about equity size regarding the mergers of publicly held companies and non-public companies will not be applied.
- If the acquiring company shares are not traded in the stock exchange, limitations concerning trade in the stock exchange for six months after the merger and sales arrangements out of stock exchange will not be applied to government companies.
The Law No. 7246 Amending Law on the Protection of Competition came into force on June 24, 2020. The amendment aims to align the RKHK with European Union competition regulations. Notable changes introduced by the amendment are as follows:
Clarification of the individual exemption regime
Several amendments have been made to article 5 of the RKHK, regulating individual exemption in a similar way to article 101/3 of the TFEU. The amendment is aiming to clarify the ambiguous wording of an undertakings' self-assessment and to allow undertakings to file an application to the RK and ask the Board to provide an exemption for an agreement, concerted practice or association of the undertakings’ decision.
The SIEC Test in merger and acquisition examinations has been introduced
The amendment made to article 7 of the RKHK regulating mergers and acquisitions, introduced the SIEC Test. The SIEC Test introduced by article 7 is a similar device used in EU competition law and merger regulations.
Other recent changes were enforced in 2018 and 2019
Following the devaluation of Turkish Lira, Turkey introduced a list of restrictions on use of foreign currency. These restrictions are mostly related to Turkish companies and Turkish citizens, yet there are implications to the real estate industry in particular. M&A transactions are not directly restricted by the order, although it can be said that investors should be mindful of these critical rules.
M&A insurance has been newly introduced to the Turkish market
Stamp tax is no longer applicable for share purchase agreements for joint-stock corporations and limited liability companies. However, it should be noted that share purchase agreements can often contain sub-contractual undertakings and covenants that might trigger stamp tax; evaluation of the tax policy should therefore generally be made on a case-by-case basis.
Industry sector focus
The sectors with the most M&A transactions in 2020 were the Internet & Mobile Services and Technology sectors. The transactions in which Internet & Mobile Services sectors were involved comprised 49% of the total number of the transactions in 2020. Looking at the transaction volume, Technology, with 52 deals, ranked ninth on the sector-based transaction volume scale, with a value of only 28 million USD. In terms of transaction volume, the sectors that dominated M&A transactions in 2020 were Telecommunications, Internet & Mobile Services and Financial Services. It seems that the most targeted are those that faced less loss of productivity during the COVID-19 pandemic, and those that could easily adapt post-COVID-19.
The year ahead
Although M&A transactions in the Turkish market increased compared to the previous year, they remained below average in matters other than deal numbers, when compared with the average of the last 10 years. It could be predicted that recovery will continue for 2021, with sectors such as Technology start-ups or the rapidly rising Gaming sector leading, as the problems caused by COVID-19 are less common than in sectors such as Tourism and Construction in the Turkish market. However, it is indisputable that different factors, such as the developments in the solution of the COVID-19 pandemic and Turkey's success in vaccination, will affect the upcoming year in an unpredictable way. The decrease in the number of foreign investors in the Turkish market remains; while the ratio of foreign investors to Turkish investors was 51% in 2015, this ratio seems to be 27% for 2020. It could be predicted that M&A transactions will increase in 2021 if Turkey can attract more foreign investors with the relief of the difficulties caused by COVID-19.
Authors: Att. Berk Çektir & Att. Uğur Karacabey