Turkey: Demerger of Public Companies
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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 2⁄3 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.
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.