Subject to general rules applicable to publicly traded companies (eg, significant transactions, board duties), there is no restriction under Turkish law regarding break-up and reverse break-up fees, and these fees may be negotiated under Turkish law’s freedom of contract principle. Likewise, penalty clauses are generally enforceable under Turkish law. Having said that, such arrangements are rarely seen in practice, in large part because of the relative lack of process-driven M&A transactions, concentrated shareholding structures and the target board’s general inability to influence a negotiated transaction, among other reasons.
Tools available to the board and management
It is difficult for a public company to protect itself against third-party bidders, mainly because of concentrated shareholding structures and small public floats, and hence the board and the management being direct representatives of the shareholders. Also, many statutory and practical tools such as poison pills and the ability to shop the company used in some jurisdictions are not always available in Turkey. Furthermore, transfers of both publicly traded and privately held shares in public companies may normally be made by shareholders without any restrictions. The limited exceptions to this rule include (i) the company’s right to approve transfers of registered shares that have not been fully paid up where there are doubts about the acquirer’s ability to pay for the shortfall (and the acquirer has not posted security if requested by the company); and (ii) the company’s approval right as specifically included in the company’s articles of association, subject in each case to certain exceptions relating to inheritance and marital property rules, and enforcement actions.
A tool available to the target company’s board is the report it is required to prepare in connection with a voluntary tender offer. In this report, the board must discuss, among other things, the offeror’s strategic plans relating to the target company including the potential impact of the offer on the company’s employees. The board can issue, within the confines of its statutory duties, an unfavourable report if it believes that the tender offer is not in the best interest of the company. The report is made available on the PDP.
In voluntary tender offers, the CMB can lengthen the offer period up to 30 business days if the target company requests holding a general assembly meeting to enable the shareholders to evaluate the tender offer. Thus, if timing is of the essence for the offeror, the board may be able to prevent a successful tender by holding a general assembly.
Finally, it would not be possible for a bidder to conduct thorough due diligence unless the board and management cooperate, although this would be unusual as a practical matter because bidders ordinarily negotiate with the controlling shareholder or shareholders, who can procure the cooperation of the board and management.
The TCC includes strict restrictions on financial assistance, a concept borrowed from Council Directive 77/91/EEC, which has since been amended and replaced to give member states more flexibility in permitting certain forms of financial assistance. However, the TCC follows the original Directive and states that a joint stock company (public or private) may not advance funds, make loans or provide security with a view to the acquisition of its shares by a third party (borrowed almost verbatim from the original Directive). Exceptions to the prohibition also follow the original Directive, and are limited to transactions by banks and other financial institutions in their ordinary course of business, and transactions undertaken for the acquisition of shares by the employees of the company or the employees of one of its subsidiaries. However, these exceptions may not be used if they have the effect of reducing the reserves of the company below mandatory statutory thresholds or limits set by the company’s articles of association, or if they prevent the creation of statutorily mandated reserves or, otherwise, the use of such reserves. Read broadly as generally agreed by practitioners to be the legislative intent of the article, this provision essentially rules out the use of acquisition financing by a target operating company, and the market has shied away from trying to employ alternative structures (for example, the merger of the operating company with the holding company in a financed transaction). Furthermore, while many jurisdictions that have financial assistance legislation permit companies to provide financial assistance for the acquisition of their shares as long as certain conditions, such as arm’s-length terms, the approval of shareholders, and the maintenance of prescribed net asset and reserve thresholds are met, Turkish law has no such exceptions.
Acquisition of own shares
A public company cannot acquire for its own account or accept as a pledge more than 10 per cent of its own shares. Buyback programmes are also subject to various temporal, financial, disclosure and other conditions.
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