Corporate M&A 2024 Comparisons

In 2023, global M&A activity slowed, impacted by economic hurdles such as tightening financial conditions, elevated inflation, and geopolitical instability. Similarly, M&A activity in Türkiye, which had been growing for three years, also decreased in 2023. Based on Deloitte’s Annual Turkish M&A Review of 2023, total deal volume in Turkey fell by 30% year-on-year to approximately USD8 billion across 403 transactions, with the number of transactions decreasing by 3%. This decline aligns with the broader global M&A market, which experienced its second consecutive year of contraction in 2023. The global deal volume dropped by roughly 25% year-on-year, reaching approximately USD 2.3 trillion.

In 2023, small, early-stage start-ups and mid-market deals dominated deal flow, with a high number of start-up deals (306 transactions) and e-commerce transactions making a remarkable contribution.

The majority of deals were driven by venture capital firms and angel investors, which were involved in 55% of the total number of deals.

Foreign investors maintained their confidence in the Turkish market: 95 deals with a combined deal value of USD5.2billion contributed 65% of the total deal value. Western investors were once again responsible for the highest number of deals and the largest deal volume among foreign investors.

Local investors have taken an equal share of Turkish M&A: 308 deals with a combined deal value of USD2.8 billion contributed 35% of the total deal value.

Financial investor activity reached a level of 237 transactions, with a deal value of USD1.3billion. The private equity sector was only able to realise 12 transactions, worth USD291 million in deal volume and representing the lowest level in the past five years, but venture capital and angel investor entities scored 222 deals, marking only a 3% decrease in number.

In 2023, technology, internet and mobile services continued to be on investors’ radar, with 123 transactions taking place, but this was not enough to boost total Turkish deal volume, as the energy sector, with USD570 million worth of deals realised through 31 transactions, attracted the largest number of deals, comprising 18% of the total annual deal volume.

Investors’ interest in e-commerce is also worth noting. There were 20 deals in the e-commerce sector with a combined deal value of USD502 million, enabling the sector to rank in second place according to deal value. Financial services, gaming, manufacturing, and healthcare also continued to draw strong interest from investors, with 38, 30, 27 and 26 transactions respectively.

The most common and preferred technique for acquiring a company in Türkiye is through share acquisition. Accordingly, investors generally choose to acquire the entire share capital or the majority/minority shares of joint stock (anonim şirket) and limited liability (limited şirket) companies, as these companies are more advantageous in terms of limitation of shareholders' liability.

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 this transfer is notified to the creditors of the transferred business, the purchaser assumes responsibility for the liabilities. However, the seller remains jointly liable with the purchaser for a period of two years 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 Türkiye (EMRA), the Banking Regulatory and Supervision Agency (BRSA), the Ministry of Treasury and Finance (the Treasury) or the Capital Markets Board of Türkiye (the CMB).

The major regulatory filing requirements in Türkiye 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 exceeding a certain threshold 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, its 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 an antitrust filing with the Turkish Competition Authority if the following thresholds are exceeded:

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

Furthermore, according to the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorisation of the Competition Board (No 2010/4), transactions regarding the acquisition of technology undertakings operating in the Turkish geographical market or having R&D activities or providing services to users in Türkiye need not adhere to the TRY250 million thresholds. For clarity, the rest of the turnover thresholds (ie, TRY750 million, TRY3 billion) shall still apply for a filing to be triggered.

The Communiqué defines “technology undertakings” as “Undertakings 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, more and more acquisition transactions are expected to trigger a merger control filing in the technology sector in Türkiye.

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 Türkiye, the Turkish Labour Code (Law No 4857) regulates the relationship between an employee and an employer. Although the Labour Code regulates employment matters, in the event of a business transfer resulting in the transfer of an employment contract, special provisions of the Turkish Commercial Code (Law No 6102) (TCC) may be applicable under certain circumstances.

The Labour Code provides that, when the workplace or a particular business thereof is transferred to another legal body on the basis of a legal transaction, such as a sale agreement, the employment contracts that exist at the workplace or a part thereof at the date of transfer are transferred to the new employer, along with all their rights and obligations. An employee's continuity of service with their former employer (transferor) must be taken into account by the new employer (transferee) in respect of all rights and benefits for which the employee's length of service is taken into consideration.

Neither the transferor nor the transferee may terminate the employment contract by reason of the transfer, and the transfer is not considered a just cause for termination by the employee. However, the transferor's or the transferee's right to terminate due to economic and/or technologic necessities, a change in the business organisation or other just causes is preserved.

According to the Labour Code, in the event of a transfer of all or part of a business, there is no need to obtain prior written consent from employees, provided that their terms of employment will not be subject to any material change. Furthermore, the former employer and the new employer are jointly liable for the transferor's debts to the employees arising out of the employment contract that were incurred prior to the transfer and that are due at the date of transfer. However, the former employer's liability for these obligations is limited to a two-year period from the date of transfer. Such joint liability may not arise in the event of the dissolution of the legal entity by merger, participation or change of status.

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 Türkiye.

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

Minimum Capital Amounts of Joint-Stock and Limited-Liability Companies Changed

The minimum capital requirements for joint-stock and limited-liability companies, specified in Articles 332 and 580 of the Turkish Commercial Code No 6102, have been revised by the Presidential Decision on Increasing the Minimum Capital Amount for Joint-Stock and Limited-Liability Companies (the "Decision"). This Decision, numbered 7887 and dated 24 November 2023, was published in the Official Gazette on 25 November 2023.

In accordance with the Decision, the minimum capital requirements for joint-stock and limited-liability companies have been revised as follows:

• for joint-stock companies, the previously set minimum capital of TRY50,000 is increased to TRY250,000;
• for non-public joint-stock companies adopting the registered capital system, the initial minimum capital, previously set at TRY100,000 is increased to TRY500,000; and
• in the case of limited-liability companies, the minimum capital amount, previously set at TRY10,000, is increased to TRY50,000.

Amendments to the Turkish Commercial Code

The Turkish Commercial Code No 6102 (the "Commercial Code") has recently undergone revisions through Law No 7511 on Amending the Turkish Commercial Code and Certain Other Laws (“Law No 7511”). This law, published in the Official Gazette dated 29 May 2024, and numbered 32560, became effective on the same date. The key changes are as follows:

• Board elections – The annual requirement for the board of directors to elect a chair and vice chair from among its members is no longer mandatory. This streamlines the process by allowing for the distribution of duties without a designated yearly election cycle.
• Board authority – The amendments remove the appointment and dismissal of branch managers and authorised signatories from the exclusive and non-delegable duties of the board of directors. This grants greater flexibility in assigning these responsibilities.
• Board meetings – If the majority of board members submit a written request for a meeting, and the chair fails to call it within a reasonable timeframe, or if the chair or vice chair cannot be reached, the requesting members now have the authority to convene the meeting themselves.

An Alternative to Going Public Through Venture Capital

The Communiqué on Companies Whose Shares will be Traded on the Venture Capital Market (the “Venture Capital Communiqué”) became effective upon its publication in the Official Gazette on 18 May 2023.

The Venture Capital Communiqué introduces the possibility for a joint stock company to offer its shares to qualified investors through a capital increase without the requirement of a public offering. This means that joint stock companies can now go public by selling newly issued shares exclusively to qualified investors, bypassing the need for a public offering of these shares.

Shares of companies subject to the Venture Capital Communiqué are prohibited from undergoing a public offering for a duration of two years from the commencement of their trading on the stock exchange. Furthermore, within a period not exceeding five years from the year their shares began trading in the venture capital markets, companies must submit an application to the Capital Markets Board accompanied by a prospectus, seeking approval for their shares to be traded on other markets of the stock exchange through capital increase without a public offering.

Amendments to Law on E-Commerce

The Law on E-Commerce (Law No 6563) (the “E-Commerce Law”) was significantly amended on 7 July 2022 to set forth obligations for intermediary service providers and service providers. One of the amendments brought about by the E-Commerce Law, scheduled to be effective from 1 January 2024, includes the prohibition of electronic commerce intermediary service providers from selling their own brands within their marketplaces. Furthermore, these providers are barred from facilitating banks, with whom they have economic ties, from engaging in activities related to the execution of all services they provide, encompassing lending transactions. Electronic intermediary service providers are restricted from engaging in goods transport activities governed by the Road Transport Law, organising transport business activities under the purview of the Decree Law on Certain Regulations on Transport and Infrastructure, and providing postal services as defined by the Postal Services Law.

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

The disclosure of material events for publicly listed companies is primarily regulated by 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 “continuous information”. Accordingly, a person or persons acting together directly or indirectly to 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 Türkiye for direct share transfers, whereas 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 TRY5 million in one calendar year, and must 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 TRY5 million in one calendar year.

In addition to the aforementioned disclosure obligations under the Disclosure Communiqué, pursuant to Article 27 of the Share Communiqué (VII-128.1) it is necessary to submit a share sale information form for the CMB’s prior approval and to 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 shareholders 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 Türkiye and regulated under the Communiqué on Principles Regarding Investment Services, Activities and Ancillary Services (III-37.1). Regardless of their marketplace, 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 a derivative trading can be undertaken without the intermediation of an investment firm if it is performed by and between real and/or legal persons in such a manner that it cannot be considered as commercial or professional activity.

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 TRY5 million; and
• all transactions relating to shares and other securities, provided that the total value of the transactions executed within a calendar year is TRY5 million or higher.

There is no regulation that obliges 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) 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 obligations for deals in privately held companies. However, the Disclosure Communiqué should be observed for publicly held companies, although 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, 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 Türkiye 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 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 general practice in Türkiye to begin with or to have a standstill agreement, although exclusivity is often agreed at the outset of the negotiations.

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 (price, timing, the undertaking’s existence of funds, ancillary disclosures, etc).

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), the assets involved, the percentage of shareholding sold, the number of parties involved, the 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 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, and states that any party or parties acting together to acquire management control of a publicly held company are required to:

• make an offer to the other shareholders to buy their shares;
• 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
• commence the offer transactions within two months following the acquisition.

Only those shareholders who held 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 the 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 Communiqué 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 (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 into 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 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 the initiation of a mandatory offer process, the persons acquiring management control over the target shall make a public disclosure, within two business days following the acquisition of management control, noting the fact that management control has been acquired and the reasons why a mandatory offer will not be made.

The main practice in Türkiye is to use cash as 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 that allow the acquirers to calculate and/or pay a portion of the acquisition price after the closing date are commonly used to bridge valuation gaps in deals in Türkiye. Moreover, escrow arrangements whereby the parties agree to deposit a certain amount of the acquisition price into an escrow account are sometimes coupled with earn-out and deferred consideration mechanisms, or are employed to ensure the 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 those 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. Those shareholders will also 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 the 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 Türkiye’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 a deal. Non-solicitation/no-shop clauses are also customary.

The drafting technique and the ambit for material adverse change clauses have been narrowed down.

The TCC provides minority protection rules, but 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 the extent permitted by trade registry directorates), to support the enforceability of such rights.

Common methods to assert rights in the governance of the company include:

• 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 for a specific class of share.

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 who possesses the share certificate and has to be given 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, provided that a notification is sent to the authority at least 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 if 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, 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, as well as the real persons and/or legal entities having management control over 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 depending on 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
• if the acquisition of the controlling shareholder status simultaneously results in 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 the acquisition process.

In bilateral deals, soft commitments are often given at the early stages of the transaction through memoranda of understanding 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 that may affect investors’ investment decisions or that is likely to affect the value and price of the shares or relevant capital markets instruments of the issuer if not disclosed to the public 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 Türkiye for direct share transfers, whereas 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, which is 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;
• obtain current announcements and up-to-date general information about listed companies in an open and timely manner; and
• 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 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, directors have a duty of loyalty and a duty of care, so 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, 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 directors are allowed to represent or promote shareholders’ interests over the company’s interests. The TCC provides a list of duties that cannot be delegated by the directors (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 that are publicly held 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, directors are prohibited from participating in discussions on the issues concerning their external personal interests (ie, any interest that does not relate to the interests of the company) or the external personal interests of their spouse, lineal heirs and descendants and relatives by blood and by marriage within the third degree that 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 Türkiye, 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 stakebuilding 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 Türkiye.

Considering that hostile takeovers are not common, defensive measures that are common in other jurisdictions (poison pills, staggered boards, golden parachutes, etc) are not developed in practice in Türkiye.

This is not applicable in Türkiye.

This is not applicable in Türkiye.

Directors cannot object to a business combination in the case of a mandatory tender offer. In a voluntary tender offer, they 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 upon 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 of notice being given, the acquirer is automatically recognised as the shareholder of the target company.

In Türkiye, 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. ISTAC has also started to become the preferred method among parties involved in small to mid-sized deals.

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.

Despite the economic fluctuations and political uncertainties causing certain covenant breaches by the sellers in the market, there has not been any notable court or arbitral precedent touching upon “broken-deal” issues.

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

See 11.1 Shareholder Activism.

See 11.1 Shareholder Activism.