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The International Comparative Legal Guide To

Mergers & Acquisitions 2011


A practical cross-border insight into mergers & acquisitions
Published by Global Legal Group with contributions from: Albuquerque & Associados Arzinger Ashurst LLP Bech-Bruun Boss & Young, Attorneys at Law Brando Teixeira Sociedade de Advogados Cardenas & Cardenas Abogados Cravath, Swaine & Moore LLP Debarliev, Dameski & Kelesoska Attorneys at Law Dittmar & Indrenius Elvinger, Hoss & Prussen Eubelius Fenech Farrugia Fiott Legal Garrigues Georgiades & Pelides LLC Gide Loyrette Nouel Goltsblat BLP Guyer & Regules Herbert Smith LLP Kalo & Associates Koep & Partners Lenz & Staehelin Mannheimer Swartling Advokatbyr AB Meitar Liquornik Geva & Leshem Brandwein Nishimura & Asahi Pachiu & Associates PRA Law Offices Schoenherr Selvam LLC Skadden, Arps, Slate, Meagher & Flom LLP Slaughter and May Steenstrup Stordrange DA Stikeman Elliott LLP SZA Schilling, Zutt & Anschutz Udo Udoma & Belo-Osagie uri i Partneri law firm

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Trkolu & elepi in cooperation with Schoenherr

Levent elepi

Burcu zdamar

1 Relevant Authorities and Legislation


1.1 What regulates M&A?

The M&A transactions in the energy sector are subject to the approval of the Energy Market Regulatory Board in the event of a shareholding change in the target company which is equal to or more than 10%. Regarding the banking sector any transaction is subject to the approval of the Banking Regulatory and Supervisory Board as regulated in their relevant regulations. The transactions in the media sector are quite similar to the energy sector. In the event of a shareholding change in the target company which is equal to or more than 10%, the approval of the Radio Television Supreme Council is required. With respect to the telecommunication sector, in case an operator merges with another company or intends to be transferred to another company according to the provisions set out under Competition legislation, the approval of the Information and Communication Technologies Authority (ICTA) is required for such M&A transaction. Furthermore, the shares of the operators having authorisation and concession agreements with the ICTA can be transferred according to the provisions set out under the relevant legislation and concession agreements. Such operators in case of any share transfer or acquisition, inform the ICTA within one month of such actions. Any M&A transaction resulting in a change of control component of such operators is made with the written approval of the ICTA.
1.5 What are the principal sources of liability?

There is no specific code which regulates Mergers & Acquisitions (M&A) in all its aspects in Turkey. However, the general principles governing M&A transactions is included under several codes such as the Turkish Commercial Code, Code of Obligations, Capital Markets Law, Law on the Protection of the Competition, Labour Law and relevant Tax Laws.
1.2 Are there different rules for different types of public company?

The rules applicable to M&A transactions involving public companies have been regulated by the Capital Markets Law and relevant communiqus.
1.3 Are there special rules for foreign buyers?

Foreign buyers are treated equally to the domestic buyers as per the Foreign Direct Investment Law enacted in 2003. Accordingly, unless otherwise stated in the international agreements and private laws, the same rules would be applied for foreign buyers. However, there is a notification requirement which should be done to the General Directorate of Foreign Investment within one month after the completion of a transaction in Turkey. In addition to the above, regarding the asset (real estate) transfer located in prohibited military areas, security areas or strategic areas, Turkish companies with foreign shareholders and Turkish companies incorporated by foreign investors are subject to prior approval from the General Staff (Genel Kurmay Bakanl). According to the regulation regarding the purchase of immovable properties and limited rights in rem by foreign investment companies, Turkish companies with foreign shareholders and Turkish companies incorporated by foreign investors that want to purchase real estate in Turkey must apply to the local governorship for a determination of whether the property is located in a prohibited military, security or strategic area. The transfer can only be completed upon the positive decision from the local governorship.
1.4 Are there any special sector-related rules?

The liabilities are mainly determined and agreed in the relevant agreements to be executed by the parties in relation to the M&A transaction. Other than that, regarding the asset transfers the Code of Obligations regulates the liabilities of both parties (buyer and seller) jointly for 2 (two) years following the realisation date of such asset transfer. Please refer to our explanations regarding the tax liabilities under question 2.11.

2 Mechanics of Acquisition
2.1 What alternative means of acquisition are there?

There are some special sector-related rules, such as in the energy (electricity, natural gas in particular), banking, insurance, media and telecommunication sectors.

There are two alternative means of acquisition are: (i) share transfer; and (ii) asset transfer. In both cases, the completion of the transfers is subject to the approval of the Competition Board in the event that the thresholds described under the Competition legislation are reached.

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2.2 What advisers do the parties need? 2.6

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What differences are there between offering cash and other consideration?

2.3

How long does it take?

The period of the transaction entirely depends on the nature of the transaction such as the acquisition type (share or asset transfer), financial size and the operations of the target company. Furthermore whether the transaction is subject to any regulatory approval or not has a direct impact on the timing of the closing. We can divide the period in three sections (i) due diligence (the sellers providing the documentation complete and in due time and the buyers work affects the completion of due diligence), (ii) execution of the relevant agreements such as share purchase agreements and/or shareholders agreements, amendment of articles of association of the target company) which are entirely subject to both parties time and effort and (iii) fulfilment of the terms and conditions agreed in the mentioned agreements i.e. the statutory approvals and permits.
2.4 What are the main hurdles?

2.7

Do the same terms have to be offered to all shareholders?

In the event that there is more than one shareholder, there is no requirement that the same terms should be applied for all shareholders other than those determined under the legislation. On the other hand, if it is a tender offer, the same terms and conditions should apply to all shareholders.
2.8 Are there any limits on agreeing terms with employees?

The hurdle may be deemed as the approvals of the regulatory boards and Competition Board which may mostly affect the schedule and/or the closing of the transaction. There is a new threshold system for the determination of the notification requirement to the Competition Board according to Communiqu No. 2010/4 on Mergers and Acquisitions Subject to the Permission of the Competition Board which will be effective from 01.01.2011. According to this new Communiqu, for a merger or acquisition which meets the following criteria it is required to obtain permission from the Competition Board: (i) where total turnovers of the undertakings that are party to a merger or acquisition exceed 100 Million Turkish Liras and the turnovers of at least two of the undertakings individually exceed 30 Million Turkish Liras; or (ii) the worldwide turnovers of one of the undertakings exceeds 500 Million Turkish Liras and the turnover of at least one other undertaking that is party to the transaction exceeds 5 Million Turkish Liras. Other than those, the voting rights in the Board and the General Assembly of the target company can be seen as a hurdle for the minority shareholder. In addition, as per the Turkish Commercial Code and Capital Market Law, since the minority rights are regulated for the minority shareholders holding 10% and 5% ratio, respectively; these ratios may also be considered.
2.5 How much flexibility is there over deal terms and price?

According to the Labour Law, in the event of a transfer of a work place, wholly or partially, which is conducted by an asset transfer mentioned in question 2.1 above, the employment contracts are also transferred to the transferor with all its right and obligations. In such case, the transferor and the transferee would be jointly liable for the obligations arising out of the employment contracts which have been concluded before the transfer date for a period of two years starting from the transfer date. Neither the transferee nor the transferor may terminate the employment contract due to the transfer of the work place. If there is a collective bargaining agreement, the provisions of such agreement should be taken into account during the determination of the obligations of the transferor and transferee parties against the employee.
2.9 What documentation is needed?

Most frequently, a pre-agreement in the form of a term sheet or a letter of intent together with a confidentiality agreement are signed by the parties before the execution of the definitive agreements. After having agreed on the transaction, a share purchase agreement or an asset transfer agreement is signed by the parties. In the event of a share transfer in relation to the shares of a limited liability company, a notarial deed should be executed by the parties before the notary public. Regarding the share transfer in joint stock companies, there is no mandatory provision in respect of the share purchase agreement being in verbal or written form. However, a written agreement is preferred by the parties in common practice. As per the nature of the transaction, in the event of a share transfer, if there would be minority shareholders who will have corporate rights after the completion of the share transfer, a shareholders agreement is recommended to be executed and articles of association of the target company is amended accordingly. The amendment of articles of association requires the General Assembly Meeting and registration of such General Assembly Resolution at the relevant Trade Registry. If the company is a holding company, publicly held company, bank, financial or insurance company, the approval of the Ministry of Trade and Industry and the Capital Market Board is required for the registration, as the case may be. The amendment of articles of association regarding the energy companies requires the permission of the Energy Market Regulatory Board.

Deal terms and prices are flexible in private transactions. With respect to privatisation tenders, the tender price must comply with certain terms, such as the pre-tender valuation of the relevant committee. Regarding the mandatory tender offers which are triggered as a result of transactions affecting publicly traded companies, prices are to be blessed by the Capital Market Authority in line with the relevant legislation. In respect of non-competition obligations in the agreements, the periods are subject to the limitations of the Competition Board considering the sector of the transaction.

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Typically, potential investors hire the services of legal, accounting and financial advisors. However, taking into account the context of the M&A, the insurance advisors, real estate experts, experts on the environmental and social impact assessment and technical advisors may also be required during the transaction.

In principle, there are no material differences between offering cash and other consideration. If there is any share swap, the procedures of such swap should be taken into account or if there is a subscription in kind, there should be a court decision regarding the appraisal of the capital in kind. Shares issued as a result of a contribution in kind are subject to a restriction to a transfer for a period of 2 (two) years.

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2.10 Are there any special disclosure requirements?

Turkey

Turkey

Special disclosure requirements have been regulated only for the publicly held companies pursuant to the Capital Markets Law and its relevant communiqus. Accordingly, a disclosure of material events to the public should be made which may affect the investment decisions of investors and the value of the capital market instruments including the events in case a legal person holds directly or indirectly 5%, 10%, 15%, 20%, 25%, 1/3, 50%, 2/3 and 75% or more of the share capital or total voting rights of the target company.
2.11 What are the key costs?

consideration is paid in instalments or any condition is determined in the agreements for the consideration, an escrow mechanism can be arranged or pledge or security agreements can be executed in order for the security of the consideration.

3 Friendly/Hostile
3.1 Is there a choice?

The main cost is the stamp duty of which the ratio is 8.25 per mil. (0.825%) over the highest amount mentioned in each agreement that is applied for each original document. Regarding the stamp duty, there is a cap which is updated in each year (the cap in 2010 was 1,161,915.90 Turkish Liras). In relation to tax issues, there might incur VAT (18%) and income/corporate tax depending on the several features of the transfer. In the event that the target joint stock company has issued the share certificates and the share transfer is completed after 2 (two) years of the issuance of such share certificate, there would be no VAT and income tax to be incurred. Additionally, there might be some costs regarding the notarisation, translation and trade registry applications.
2.12 What consents are needed?

There is no different regulation covering the friendly or hostile transaction. However as per the Capital Markets legislation, in case the management control of the target company which is a publicly held company is acquired by obtaining certain a group of shares by any person or shareholder, a tender offer is mandatory providing protection of the rights of the other shareholders of the target company. Individuals/entities who own 50% or more of the capital and the voting rights of the target company are obliged to make a tender offer to the other shareholders unless privileged shares exist. In such case, any announcement, advertisement and notice to be made for collecting the shares of other shareholders by tender offer are subject to the approval of the Capital Markets Board.
3.2 How relevant is the target board?

In any M&A transaction, the requirement of the notification to the Competition Board should be considered before the completion of the transaction. Therefore, if the related turnovers of the parties are not met the criteria stipulated in the new M&A Communiqu, it is essential to obtain the approval of the Competition Board by delivering all the required documentation and financial and legal information of the parties. With respect to the regulatory approvals, depending on the sector and kind of the target company, the approval of the Energy Market Regulatory Board, Banking Regulatory and Supervisory Board, Radio Television Supreme Council, Information and Communication Technologies Authority, the Capital Markets Board or the Ministry of Trade and Industry will be required, as the case may be applicable. In addition to the above, an approval from the shareholders and/or board of directors may be needed in order to complete the M&A transaction in the event that such requirement of approval is stated in the articles of association of the target company
2.13 What levels of approval or acceptance are needed?

The target board is authorised to approve the share transfer in the target company and in accordance with such resolution; the share transfer and new shareholding structure should be registered into the share ledger. A share transfer becomes opposable to third parties upon registration of the transfer into the share ledger. The board may avoid approving the share transfer for registration into the share ledger, however the board cannot avoid adopting the relevant resolution as long as such transfer is made pursuant to the share transfer procedures under Turkish Commercial Code and articles of association of the target company.
3.3 Does the choice affect process?

In relation to publicly held companies, since it is a legal requirement to make an offer by the buyer to the other shareholders after the completion of share transfer, it will not affect the process.

4 Information
4.1 What information is available to a buyer?

As mentioned above, as per the articles of the association of the target company, the board of directors and/or shareholders resolution might be needed during the M&A transaction. Furthermore, as a result or a condition precedent of a transaction, an amendment of articles of association might be required that is subject to the approval of the shareholders and registration process at the relevant Trade Registry.
2.14 When does cash consideration need to be available?

The parties may execute a confidentiality and non-disclosure agreement and accordingly the seller may provide any confidential information to the buyer. However, the seller may not prefer to provide all information. In such cases, such information might be provided at the signature of the agreements or stipulated in the agreements.
4.2 Is negotiation confidential and is access restricted?

Principally, the cash consideration needs to be available on the closing date of the M&A transaction. In the event that the

Pursuant to the confidentiality and non-disclosure agreement executed between the parties, the access by the third parties may be restricted to the information and negotiation. Generally, the negotiation is performed between the representatives of the buyers and sellers; and in addition to those their relevant financial and legal advisors and employees may be allowed for the negotiation.

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4.3 What will become public? 6.3

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Can the target agree to issue shares or sell assets?

Penalty clauses with high amounts and any security such as mortgages or share pledge are available to tie up a deal.

4.4

What if the information is wrong or changes?

7 Bidder Protection
7.1 What deal conditions are permitted?

The sale agreement to be executed between the parties more likely will stipulate the relevant provisions in the event of the disclosure of the wrong information or changed information. As a result, in such cases, first of all a notification should be immediately made to the buyer regarding the issue and if any loss or damage is still occurred by the buyer due to the wrong or changed information, the seller should compensate the buyers loss or damages according to the provisions agreed in the sale agreements. On the other hand, if wrong information has been delivered to the state authorities such as Competition Board or Capital Markets Board, sanctions might be imposed according to the relevant regulations unless the correct or amended information is not delivered in proper.

Under Turkish law, the parties may mutually agree on any terms and conditions as long as they are in compliance with the provisions of Turkish law.
7.2 What control does the bidder have over the target during the process?

The bidder does not have any control over the target during the process. However the bidder may prohibit some of the essential activities of the target company until the end of the completion of the transfer by putting a relevant provision in the agreement.
7.3 When does control pass to the bidder?

5 Stakebuilding
5.1 Can shares be bought outside the offer process?

The shares can be bought outside the offer process considering the rules in the relevant legislation.
5.2 What are the disclosure triggers?

Please refer to our explanations under question 2.10 above.


5.3 What are the limitations and implications?

If it is a share transfer in a joint stock company, the transfer is completed by the (a) endorsement of the share certificates in the name of the buyer, if any, and delivery of them to the buyer and (b) registration of the new shares into the share ledger. If it is a share transfer in a limited liability company, the transfer is completed by (a) an executed notarial deed and (b) adoption of the shareholders resolution in this respect. Thereafter, the control passes to the bidder as a shareholder. However with respect to the management, the control passes to the new management when the new board members and managers, as the case may be, are registered at the relevant Trade Registry.
7.4 How can the bidder get 100% control?

The limitations and implications have been regulated under the Capital Markets Law and relevant regulations.

6 Deal Protection
6.1 Are break fees available?

The break fees can be agreed by the parties in the agreement which will be valid and effective under Turkish law.
6.2 Can the target agree not to shop the company or its assets?

The bidder can get 100% control in the event that it holds 100% of the share capital in the target company. The Turkish Commercial Code governs several quorums such as 50.1%, 66.67% and 100% in order to adopt and perform various decisions. All shareholders are also entitled to participate to the share increase under the Turkish Commercial Code in order not to be diluted in the company. The major shareholder does not have any legal power to force the other shareholders to sell their share unless it is mutually agreed under the agreements.

8 Target Defences
8.1 Does the board of the target have to tell its shareholders if it gets an offer?

In the agreements, there should be a provision prohibiting the target company not to shop the company or its assets to any third party otherwise a compensation/penalty provision should trigger. As a result, the target company cannot make such kind of decisions solely. Additionally, as per the agreements, the seller may also undertake the actions of the target company and if the completion of the transaction is not performed due to any act of the target company, the buyer will be compensated by the potential seller.

Since the board does not own the shares of the company under Turkish law (other than the exceptional issues), no offer is made to the board in principal. In the event the board has received any offer, the board should inform the shareholders with such offer.

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The corporate documents as (i) the articles of association of the target company (including the amendments of such articles of association, share capital, founders, board members), (ii) some of the board resolutions (e.g. appointment of the board of directors and their duty distributions) and (iii) all general assembly resolutions which are open to public information since they are required to be registered at the relevant Trade Registry.

The target company can agree, in the agreements to be executed by the relevant parties, to issue shares or sell assets.
6.4 What commitments are available to tie up a deal?

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8.2 What can the target do to resist change of control? 9.2 What happens if it fails?

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It is not possible for the target company to resist the change of control. Only the other shareholders may resist the change of control if he/she has any legal right under the articles of association or shareholders agreement. Otherwise, any shareholder is entitled to sell its shares to any third party without any prior approval of the other shareholder.
8.3 Is it a fair fight?

In case of a failure of the transaction due to the non-compliance of any party, such party should compensate the loss or damages of the other party and/or should pay the penalty which can be set forth in the agreements.

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Updates

The target is comprised of three main organs as (i) the general assembly, (ii) the board and (iii) auditor in joint stock companies under the Turkish Commercial Code. As the shareholders are entitled to appoint the board in compliance with the law and the articles of association of the company, they also allow and prohibit some activities to be performed in the company. Taking into consideration the role of the shareholders in the company, it may be deemed as a fair fight for the board directly not to resist change of control.

10.1 Please provide, in no more than 300 words, a summary of any relevant new law or practices in M&A in Turkey.

There is a new Communiqu No. 2010/4 on Mergers and Acquisitions Subject to the Permission of the Competition Board which has been promulgated at the Official Gazette dated 07 October 2010 and will be effective as of 01 January 2011. As the detail information is given in question 2.4 above, there would be no market share threshold anymore and turnovers are no longer calculated on a market-definition basis but total turnovers (including worldwide turnover) are taken into consideration. Furthermore, a new Turkish Commercial Code is expected to be entered into force in 2011 which will regulate the detail merger procedures.

9 Other Useful Facts


9.1 What are the major influences on the success of an acquisition?

It is essential to obtain all relevant statutory approvals, permits and licences pursuant to the legislation. The sector should be assessed and considered in detail and the financial and legal due diligence should be performed.

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Levent elepi
Trkolu & elepi in cooperation with Schoenherr Mim Kemal ke cad. Kristal apt. No. 17 K:3 Harbiye-stanbul Turkey

Burcu zdamar
Trkolu & elepi in cooperation with Schoenherr Mim Kemal ke cad. Kristal apt. No. 17 K:3 Harbiye-stanbul Turkey

Tel: Fax: Email: URL:

+90 212 230 17 00 +90 212 230 37 99 leventc@ctk-law.com www.ctk-law.com

Tel: Fax: Email: URL:

+90 212 230 17 00 +90 212 230 37 99 burcuo@ctk-law.com www.ctk-law.com

Levent elepi is one of the founding partners of Trkolu & elepi Law Office (T&C) and leads the legal consultancy department. He has a wide-ranging experience in national and international corporate practice and has been active representing various clients of the firm in international commercial transactions, mergers and acquisitions, financing and energy law. Levent advises clients on regulatory compliance and corporate governance issues with particular experience in the areas of mergers and acquisitions, corporate reorganisation, corporate law, capital markets and financing contracts. He has advised on the privatisation of public companies, such as ports and telecommunication companies, with expertise in the analysis of contracts, regulatory issues and financing legal aspects. His practice also focuses on representing foreign companies in public bids before the Turkish government and public institutions and companies.

Burcu zdamar is a senior associate at T&C specialising in Corporate/M&A. Burcu acts for clients active in the energy and industry, advising them in particular in M&A projects. Previously, Burcu was working in a state petroleum transportation company and Ministry of Energy and Natural Resources for 6 years as a legal counsel with regards to the international petroleum and gas projects.

Istanbul law firm Trkolu & elepi was established by Erhan Trkolu and Levent elepi in 2005 and specialises in corporate and M&A transactions, privatisations, financings and commercial litigation. The firm is particularly experienced in advising on large cross-border transactions in the energy and telcoms sectors. The firms clients include both international and Turkish companies. The firm has acted on numerous headline in- and outbound transactions, including some of the countys largest privatisations. In 2010, central European law firm Schoenherr and Trkolu & elepi joined forces. Together the two firms want to become the first choice for international investors that enter or have entered the Turkish market, as well as for Turkish companies that follow a Central European expansion strategy. Schoenherrs Vienna office has a dedicated Turkish desk which has been working closely together with Trkolu & elepi since 2007. The firms provide full services in all fields of business law with a focus on complex international transactions, in particular in M&A and energy projects in Turkey and Central Europe.

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The International Comparative Legal Guide to:

Mergers & Acquisitions 2011


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