In light of the impact of the COVID-19 pandemic, Turkish M&A activity has shown signs of a notable recovery since June, outperforming expectations in terms of activity in 2020. A total of 304 deals has been recorded in Turkey, with a total deal value of USD9 billion. While they were down on historical levels, volumes were much higher than expected in 2020. The deal volume materialised through 304 deals, and reached an all-time high in terms of the number of deals in Turkish M&A history. Out of 304 deals, 133 had a disclosed value adding up to approximately USD6.3 billion. Including the estimated value of deals with undisclosed values, the total volume of M&A is estimated to be around USD9 billion.
In 2020, M&A activity was once again characterised by small- and middle-market transactions. Venture capital firms and angel investors increased their activity significantly and shaped the financial investors market in 2020, where private equity funds acted rather slowly.
Mega-transactions continued to constitute 40% of the total volume, with the first "unicorn" Peak Games being purchased by US-based firm Zynga for USD1.8 billion, and Turkey's Wealth Fund consolidation of several insurance firms worth USD953 million under an umbrella brand.
134 start-ups in Turkey received USD200 million of investment from venture capital and angel investors in 2020 which representing the steady development of the ecosystem.
Foreign investors' deal volume increased by 35%, representing an ongoing investor confidence in the Turkish market. During 2020, 82 M&A transactions were made by foreigners, worth USD4.6 billion, amounting to 51% of total transactions in Turkey. Among foreign investors, European investors made 47 transactions worth USD1.2 billion, followed by investors from North America (13 transactions), and from Qatar (four transactions).
Financial investor activity reached an all-time high in the number of deals through 164 transactions, up from 87 deals in 2019, with a total deal volume of USD4 billion.
In 2020, backed by venture capital funds and angel investors, internet and mobile services and technology were again the two of the most-in-demand sectors, with 71 and 42 deals respectively, followed by financial services (17), e-commerce (seven), energy (six) and logistics and transportation (four) sectors.
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:
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 are exceeded:
For the purposes of calculating the relevant turnover thresholds, a company will be deemed to "control" another company if it:
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 last three 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.
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.
On 2 December 2020, an omnibus law in relation to amendments in certain laws and regulations, including the applicable legislation in the energy market, was published in the Official Gazette and entered into force. Prior to the entry into effect of the omnibus law, 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. As such, EMRA approval will no longer be required for transfer of shares of a company with a generation licence.
In the past 12 months, 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 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.
Another notable development is that the CMB is currently in the process of amending the Tender Offer Communiqué and announced, on 1 February 2020, the draft tender-offer communiqué for public consultation until 19 February 2020 (the Draft Tender Offer Communiqué). Even though the text of the Draft Tender Offer Communiqué has not yet been finalised, the main differences compared to the current Tender Offer Communiqué are as follows:
Last, but not least, with the legislative amendments in the company law domain that became effective as of 1 April 2020, the holders of bearer shares in all Turkish companies will be obliged to report their ownership of those shares to the companies, who will then be obliged to report the identity details of the holders of their bearer shares to the Central Securities Depository of Turkey. The holders of the bearer shares who have not been notified to the Central Securities Depository of Turkey will not be able to exercise their shareholder rights vis-à-vis the company or the third parties. Accordingly, the acquirers of bearer shares will not be able to exercise their shareholder rights and will face an administrative fine of TRY5,000 unless they notify the Central Securities Depository of Turkey of their acquisition of the bearer shares.
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:
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 TRY436,440 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 TRY436,440 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:
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. Under the Draft Tender Offer Communiqué, which has not yet been finalised, the acquirer of the shares will only be obliged to make a tender offer to the other shareholders who have been holding shares in the company as of the disclosure date of the acquisition of the shares and voting rights granting management control.
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.
The CMB may grant an exemption from the mandatory offer obligation under certain circumstances, including, but not limited to:
The Tender Offer Communique also sets forth the circumstances under which an obligation to make a mandatory tender offer is not triggered, including:
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.
While the offer must be made for all the shares of the remaining other shareholders in mandatory tender offers, the amount of target shares and certain conditions of the offer are left to the discretion of the offeror in voluntary tender offers.
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:
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 9.00am 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 have concluded share purchase agreements prior to the COVID-19 outbreak with a closing date scheduled to a date after the outbreak are likely to have difficulty in running the target company in the ordinary course of business and consistent with past practice. This has steered them to the risk of breaching certain covenants under the share purchase agreement. 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.
An Overview of M&A Activity in 2020
After one of the quietest years in Turkey’s history in terms of M&A activity in 2019, expectations were low for 2020 with the added effect of the global pandemic. A further cause for pessimism was the political and economic uncertainties surrounding the country, the highlight being the Eastern Mediterranean Sea crisis resulting from Turkey’s natural gas exploration efforts in the Eastern Mediterranean Sea, which intensified tensions between Turkey and Greece, Cyprus, and other EU countries. However, in a year where global M&A activity was slightly lower than the previous year, the Turkish M&A market managed to exceed expectations with an increase in both the number and volume of transactions compared to 2019.
According to the 2020 edition of Deloitte’s Annual Turkish M&A Review, the disclosed transaction volume of M&A deals in Turkey last year was USD6.3 billion. Based on this figure, Deloitte has estimated the total M&A transaction volume in 2020 in Turkey to be around USD 9 billion, which amounts to a 70% increase compared to the previous year. Two mega deals (transactions with volumes exceeding USD1 billion) in 2020, namely the acquisition of Turkcell by the Turkey Wealth Fund (Türkiye Varlık Fonu) and the acquisition of Peak Games by Zynga, played a major factor in this surge in M&A activity in 2020.
The Impact of the Turkey Wealth Fund
The Turkey Wealth Fund, which was established in 2016 as the sovereign wealth fund of Turkey to support economic development in the country, definitely made its mark in the Turkish M&A market in 2020. Not only did the Turkey Wealth Fund carry out the biggest M&A deal of 2020 in Turkey by acquiring a 26% stake in Turkcell İletişim Hizmetleri A.Ş., the leading mobile phone operator in Turkey, for USD1.8 billion, it also consolidated six state-owned insurance and pension companies through a series of acquisitions for a total consideration of approximately USD953 million. As a result, the Turkey Wealth Fund was directly responsible for more than 43% of the disclosed M&A transaction volume and roughly 30% of the total estimated M&A transaction volume in Turkey in 2020.
Following its acquisitions in 2020, the Turkey Wealth Fund now has a portfolio of 23 companies in eight different sectors as well as various real estate and licences for games of chance and horseracing. More than one third of the Turkey Wealth Fund’s portfolio is now comprised of its shares in companies in the financial services sector, namely Ziraat Bankası, Halkbank, and Vakıfbank, the three historically state-owned Turkish banks, and Türkiye Sigorta and Türkiye Hayat Emeklilik, which were formed as a result of the merger of the insurance and pension companies acquired last year.
Other sectors that the Turkey Wealth Fund is involved in include energy (eg, BOTAŞ and Turkish Petroleum), transportation and logistics (eg, Turkish Airlines and PTT, the national universal postal services provider), technology and telecommunications (eg, Turkcell, Türksat and Türk Telekom), mining, and agriculture and food.
Prioritisations looking forward
The Turkey Wealth Fund is expected to prioritise direct investments over M&A transactions in the coming years, which may result in a considerable hit to the total volume of M&A transactions. Still, this does not mean that the Turkey Wealth Fund will no longer be involved in M&A deals in the coming years, and more deals may occur where the Turkey Wealth Fund is on the seller side. An example of this from 2020 was the sale of the 10% stake that the Turkey Wealth Fund held in Borsa Istanbul, the Turkish stock exchange entity, to the Qatar Investment Authority.
The Turkey Wealth Fund may sell further shares in Borsa Istanbul or other companies in which it holds shares (eg, Turkcell and Türk Telekom, both being competitors in the same sector) in the near future. Separately, direct investments made by the Turkey Wealth Fund may also give rise to M&A opportunities in sectors that the Turkey Wealth Fund is looking to invest in, which include energy, petrochemicals, and gold mining.
Mobile Gaming Industry
Mobile gaming is one of the industries that has been on a constant rise in Turkey over the past few years, and this year has marked the highest volume of M&A deals in the Turkish mobile gaming industry yet. As stated above, one of the two mega-deals in Turkey in 2020 was the acquisition of Peak Games, the developer of globally known hyper-casual puzzle mobile games, by Zynga for USD1.8 billion. This was not the only investment made in the Turkish mobile gaming industry by Zynga in 2020, as Zynga also acquired an 80% stake in Rollic Games, another hyper-casual game maker, for USD180 million earlier in the year. 2020 also witnessed several investments in Turkish mobile gaming companies made by venture capital firms and angel investors.
According to Statista, the German market and consumer data research firm, the total revenue generated by the Turkish mobile gaming industry is projected to reach USD356 million in 2021 and show an annual growth rate of nearly 8% in the next five years, resulting in an estimated market volume of USD482 million by 2025. With no signs of slowdown in the mobile gaming industry, M&A activity in the Turkish mobile gaming sector is expected to continue to grow.
After a slow year in terms of financial investors’ (ie, private equity firms, venture capital firms, angel investors, and international financial institutions) involvement in the Turkish M&A market in 2019, 2020 saw the resurgence of financial investors led by the Turkey Wealth Fund. According to the reports issued by Deloitte and KPMG, the number of transactions involving financial investors reached an all-time high in 2020 and the volume of these transactions amounted to approximately 50% of the total transaction volume, a percentage significantly higher than in previous years.
The Turkish start-up environment also continues to be on the rise with the help of various start-up incubators, attracting USD200 million of investment from venture capital firms and angel investors in 2020 according to Deloitte. With more and more business accelerators and incubators arriving in the Turkish start-up scene, this trend is expected to continue to grow in the near future, which should increase both the number and volume of investments made by venture capital firms and angel investors.
Expectations for 2021
It is difficult to estimate whether 2020’s upward trend in the Turkish M&A market will continue in 2021. With Turkey showing good signs of swiftly implementing its vaccination programme, and the country being a viable alternative for multinational companies looking for ways to diversify their supply chains in the wake of the pandemic due to its geopolitical position and high manufacturing capacity, there are reasons to be optimistic for M&A activity in Turkish in 2021. Conversely, the Turkish M&A market may be adversely affected from ongoing political uncertainties involving the country, and particularly from Turkey’s strained relations with the United States due to its plans to activate the S-400 missile system acquired from Russia as well as the expected decision of the Manhattan Federal Court with respect to Halkbank’s alleged violation of US sanctions on Iran. Still, investors hope that Turkey-US relations will recover based on recent news from Turkey that it may compromise on the issue of activating the Russian air defence system.
In terms of sectors where high M&A activity is projected in 2021, telecommunications, technology, and media is expected to continue its rise to become one of the leading sectors in the Turkish M&A market. We may see further investment in Turkish technology and gaming companies in 2021, particularly from venture capital firms and angel investors.
The automotive industry is once again expected to be an important sector in M&A activity in Turkey in 2021. The main driver behind this expectation is Turkey’s efforts to produce TOGG, its first home-grown car. The ground-breaking ceremony for TOGG’s factory was held in July 2020, and TOGG is scheduled to begin production in 2022. Many expect this huge investment to give rise to an increased need in the automotive spare parts and supply industry, and consequently, will boost M&A activity in these fields.
Still, the automotive industry is among the industries suffering from the global pandemic. The effects of COVID-19 were undoubtedly felt in the automotive industry last year, which saw a considerable decline in demand from consumers. In any event, the TOGG project is projected to contribute USD50 billion to Turkey’s national GDP in 15 years as of 2022, which gives way to various investment opportunities in the Turkish automotive industry.
The next few years may also set the scene for deals involving the acquisition by third parties of various public private partnership projects implemented in Turkey within the last decade. The first example of such projects being subject to M&A transactions was seen back in 2018 with the acquisition of a 51% stake in the project company operating the Third Bosphorus Bridge and Northern Marmara Motorway project by China Merchants Group. With the healthcare industry on the rise and the aviation industry having taken a big hit from the pandemic, there may be investment opportunities in the portfolio of Turkish public private partnership projects, which include projects in both sectors.
Based on reports of additional incentives being granted to these projects to mitigate the adverse effects of the pandemic, particularly in the aviation sector, the Turkish government seems to be providing all of the support it can give to these projects, which were already appealing to many investors given the passenger/patient guarantees, debt assumptions, and termination undertakings, etc. involved.
Privatisation may also play an important role in Turkey in 2021 as the Turkey Wealth Fund has long been expected to privatise its horse racing licence. The privatisation may take place in 2021 as the Turkey Wealth Fund has reportedly retained financial and legal advisors to work on the potential transaction, and towards the end of last year, the CEO of the Turkey Wealth Fund had pointed to early 2021 as the target date for the beginning of the tendering process.