Corporate / M&A

Turkey: Demerger of Public Companies

Under Turkish law, M&A and demerger are governed by the Turkish Commercial Code (TCC). But the demerger process of public companies was mainly regulated under Capital Market Law (CML) and Merger Communiqué Serial I, no: 31. By enactment of the Communiqué on Mergers and Demergers (Communiqué) on 28 December 2013, the Merger Communiqué is revoked and the demerger process of public companies is gathered under one piece of legislation in line with the TCC and CML. The authors highlight the major points of this demerger process.

Demerger under the TCC

Under the TCC, share cap­i­tal com­pa­nies (ie, joint stock and lim­it­ed lia­bil­i­ty com­pa­nies) (pub­licly trad­ed or not) may demerge ful­ly or par­tial­ly. Under the full demerg­er process, the demerg­ing com­pa­ny trans­fers all its assets to anoth­er new­ly incor­po­rat­ed or exist­ing com­pa­ny and liq­ui­dates. Under the par­tial demerg­er process, the demerg­ing com­pa­ny trans­fers part of its assets to anoth­er share cap­i­tal com­pa­ny with­out liq­ui­da­tion. Under both process­es, share­hold­ers of the demerg­ing com­pa­ny auto­mat­i­cal­ly become share­hold­ers of the acquir­ing com­pa­ny (at the ratio cor­re­spond­ing to their shares) auto­mat­i­cal­ly and the uni­ver­sal suc­ces­sion prin­ci­ple (kül­li hale­fiyet) applies. Accord­ing­ly, all assets and lia­bil­i­ties of the demerg­ing com­pa­ny are assumed by the acquir­ing com­pa­ny, which can be new­ly incor­po­rat­ed or already exist­ing.

Communiqué on Mergers and Demergers

Under the Com­mu­niqué, a Cap­i­tal Mar­kets Board (CMB) per­mit is required for demerg­ers involv­ing a pub­lic com­pa­ny. The demerg­ing pub­lic com­pa­ny must pre­pare an announce­ment note for pub­lic dis­clo­sure, the con­tent of which is approved by the CMB. The announce­ment note is sub­mit­ted to the CMB with a num­ber of oth­er doc­u­ments list­ed in the Com­mu­niqué, includ­ing (but not lim­it­ed to) the gen­er­al assem­bly res­o­lu­tion, demerg­er agreement/plan, demerg­er report, finan­cial state­ments and expert report for appraisal of val­ue of the demerg­ing company’s assets and deter­mi­na­tion of equi­ty val­ue and share exchange ratio.

After obtain­ing approval of the CMB, the demerg­er agree­ment, demerg­er report, finan­cial tables for the last three years, and expert report (inde­pen­dent audit report for last three years, mid-term finan­cials and real estate val­u­a­tion report if any) should be dis­closed to pub­lic via Pub­lic Dis­clo­sure Plat­form (PDP) and web­site of the relat­ed com­pa­ny at least 30 days pri­or to the gen­er­al assem­bly meet­ing approv­ing demerg­er. If the par­ties to the demerg­er are unlist­ed pub­lic com­pa­nies, such dis­clo­sures must be made on the CMB’s web­site and on the web­site of the rel­e­vant com­pa­ny.

Accord­ing to the CML, for approval of a demerg­er, no meet­ing quo­rum is required; affir­ma­tive votes of the share­hold­ers present in the meet­ing rep­re­sent­ing 23 of the votes will be suf­fi­cient. How­ev­er, if the share­hold­ers rep­re­sent­ing at least half of the total votes are present in the gen­er­al assem­bly, affir­ma­tive votes of share­hold­ers rep­re­sent­ing a major­i­ty of the total vot­ing rights present in the meet­ing is required for approval of demerg­er.

Securing the shareholders

Under the Com­mu­niqué, share­hold­ers of a pub­lic demerg­ing com­pa­ny may request shares and rights of the acquir­ing com­pa­ny in the val­ue cor­re­spond­ing to their shares and rights in the demerg­ing com­pa­ny. Share­hold­er of the demerg­ing com­pa­ny may become share­hold­er in sev­er­al or all acquir­ing com­pa­nies that are par­ty to the demerg­er trans­ac­tion.

Exit right of the shareholders

Under the CML, demerg­er is defined as a mate­r­i­al trans­ac­tion for pub­lic com­pa­nies, and a Com­mu­niqué on Mate­r­i­al Trans­ac­tions and Exit Rights (Mate­r­i­al Trans­ac­tions Com­mu­niqué) is enact­ed by the CMB. As per the Mate­r­i­al Trans­ac­tions Com­mu­niqué, a share­hold­er who does not approve the demerg­er, and reg­is­ters such oppo­si­tion to the min­utes of the meet­ing, may exit the com­pa­ny. The shares of the share­hold­er must be pur­chased by the pub­lic com­pa­ny.

Expedited Demerger

In par­tial demerg­er trans­ac­tions, if the demerg­ing pub­lic com­pa­ny owns at least 95% shares of the acquir­ing com­pa­ny that grants vot­ing rights, an expe­dit­ed demerg­er process applies. Under the Com­mu­niqué, in case of an expe­dit­ed demerg­er, an inde­pen­dent audi­tor report or expert report is not required to be sub­mit­ted to the CMB. In this type of demerg­er, the con­tent of the announce­ment dif­fers full and par­tial demerg­er.

Notification to the CMB and obtaining an issuance certificate

Pub­lic com­pa­nies that are par­ty to a demerg­er trans­ac­tion must apply to CMB with­in six busi­ness days after the gen­er­al assem­bly approves the demerg­er to obtain the issuance cer­tifi­cate. The issuance cer­tifi­cate is grant­ed by the CMB for the cur­rent shares of the acquir­ing company/companies and for the shares to be issued for the demerg­ing com­pa­nies’ acquired assets for both full demerg­er and par­tial demerg­er.

Depend­ing on the speed of the inter­nal actions to be tak­en by rel­e­vant com­pa­nies, the entire demerg­er process for pub­lic com­pa­nies takes ca 4 – 6 months.

The enactment of the Communiqué on Mergers and Demergers increases the importance of public disclosure in the demerger process for public companies and satisfies the needs of business by bringing clarity and transparency.