Introduction
Mergers and demergers of public companies in Turkey are among the most complex transactions under Turkish Capital Market Law. A merger or demerger may change the legal structure, shareholding composition, asset base, liabilities, corporate control, market value and investor expectations of a public company. For this reason, Turkish law regulates these transactions through a detailed framework involving the Capital Markets Board of Türkiye, known as the CMB in English and SPK in Turkish, the Turkish Commercial Code, public disclosure rules, independent expert opinions, general assembly approval and investor protection mechanisms.
The main capital market regulation is the Communiqué on Merger and Demerger II-23.2. The CMB’s official communiqué list identifies Communiqué on Merger and Demerger II-23.2 as one of the core capital market regulations applicable to issuers, published on 28 December 2013. The communiqué states that its purpose is to regulate the procedures and principles to be followed in merger and demerger transactions where at least one party is a publicly held corporation under Capital Markets Law No. 6362.
For listed companies, the process is not merely a private corporate restructuring. The company must inform the market through KAP, submit required documents to the CMB, obtain approval of the announcement text, prepare an expert institution report, disclose key documents before the general assembly and protect shareholders who may be affected by the transaction. In some cases, mergers and demergers may also constitute significant transactions, giving dissenting shareholders a right to sell their shares to the company under the relevant withdrawal right rules.
Legal Framework of Mergers and Demergers in Turkey
The legal framework consists primarily of Capital Markets Law No. 6362, Communiqué on Merger and Demerger II-23.2, Communiqué on Common Principles Regarding Significant Transactions and the Retirement Right, CMB material event disclosure rules, KAP procedures, Borsa İstanbul rules and the Turkish Commercial Code. The SPK explains that listed companies must apply to the CMB with required information and documents for special transactions such as issuance of capital market instruments, capital reduction, mergers and demergers.
The CMB’s 2013 press release on Communiqué II-23.2 states that the communiqué was prepared in harmony with the Capital Markets Law and the Turkish Commercial Code, revised the concepts and principles used in public company mergers and demergers, introduced announcement text approval, reorganized shareholder information principles in line with investor protection and EU-related standards, introduced rules on financial statements, and regulated simplified merger and demerger procedures.
This layered system means that legal analysis must be transaction-specific. A merger between two listed companies, a merger between a listed company and an unlisted subsidiary, a full demerger, a partial demerger, a demerger into a newly established company, or a transaction involving a controlling shareholder may all produce different legal consequences.
What Is a Merger?
A merger is a corporate restructuring in which one or more companies combine their legal and economic structures. Under Turkish practice, mergers generally occur either through acquisition, where one company absorbs another, or through the establishment of a new company, where existing companies combine into a newly formed entity.
In the capital market context, the key issue is whether at least one party is a publicly held corporation. Communiqué II-23.2 applies to merger transactions involving public companies and capital companies, and also to mergers involving public companies and private companies or cooperatives where the public company is the acquiring corporation.
A merger may be used for many reasons: operational efficiency, group simplification, tax planning, debt restructuring, acquisition integration, elimination of duplicated costs, consolidation of subsidiaries or preparation for strategic investment. However, when a public company is involved, the transaction affects market investors. Therefore, the CMB requires public disclosure, expert valuation, exchange ratio review and approval procedures.
What Is a Demerger?
A demerger is a transaction in which a company transfers part or all of its assets, liabilities or business units to one or more existing or newly established companies. In Turkish practice, demergers may be full or partial. A full demerger may result in the divided company ceasing to exist, while a partial demerger allows the original company to continue operating after transferring certain assets or business lines.
Communiqué II-23.2 covers demerger transactions to which publicly held corporations are a party. This is important because demergers may materially affect the public company’s business model, asset base, profitability, debt structure, shareholder rights and market valuation.
A public company may use demerger to separate business lines, create a focused listed structure, transfer real estate or subsidiaries, isolate risks, prepare for sale of a business unit, improve corporate governance or reorganize a group. However, a demerger may also create risks for minority shareholders if valuable assets are transferred on unfair terms. Therefore, valuation, disclosure and shareholder approval are critical.
Scope of Communiqué II-23.2
Communiqué II-23.2 applies to merger transactions involving publicly held corporations and certain other entities, and to demerger transactions involving public companies. Its provisions also apply by comparison to companies and cooperatives that are parties to merger or demerger transactions with public companies.
This “by comparison” rule is important. If an unlisted company merges with a listed company, the unlisted party may also become subject to disclosure and documentation requirements because the transaction affects public investors. A private company cannot avoid CMB scrutiny merely because it is not itself listed if the transaction involves a public company.
The scope also shows that public company mergers and demergers are not ordinary Turkish Commercial Code procedures alone. They require capital market compliance because public investors must be informed and protected.
CMB Approval of the Announcement Text
One of the most important elements of the process is the announcement text. Communiqué II-23.2 requires preparation of an announcement text whose content is determined by the CMB and requires CMB approval of that text in mergers and demergers involving public companies.
However, CMB approval of the announcement text does not mean that the CMB guarantees the accuracy of all information contained in the announcement text, merger or demerger agreement, demerger plan, merger or demerger report, or expert institution opinion. The communiqué expressly states that responsibility provisions under Article 32 of Capital Markets Law No. 6362 apply to announcement texts and other public disclosure documents prepared for public disclosure purposes.
This is a crucial point for directors and investors. CMB approval is a regulatory review of the disclosure process. It is not a warranty that the transaction is fair, profitable or risk-free. The issuer, directors, signatories and experts remain responsible for false, misleading or incomplete information.
Board Decision and Start of the Process
The merger or demerger process begins with decisions of the management bodies of the companies participating in the transaction. Communiqué II-23.2 states that, for a merger or demerger process to begin, the management bodies of the companies that are parties to the transaction must adopt a decision.
For public companies, this board decision is not only an internal corporate step. It may trigger material event disclosure obligations. The SPK’s listed company obligations page states that listed companies must disclose inside information and continuous information through KAP when the relevant events occur or become known.
A board decision concerning a merger or demerger should therefore be drafted carefully. It should identify the parties, transaction type, purpose, expected structure, legal basis, independent board member votes where relevant, potential withdrawal right price if the transaction qualifies as significant, and steps to be taken for CMB application and public disclosure.
Application to the CMB
After the board decision, the company must apply to the CMB for approval of the announcement text using the documents specified in the annexes of the communiqué. Communiqué II-23.2 provides that, after the management body decision, applications for approval of merger announcement texts must be made with the documents in Annex 1, and applications for demerger announcement texts must be made with the documents in Annex 2.
The CMB application is a technical and document-heavy process. It typically involves corporate decisions, draft merger agreement or demerger plan, financial statements, expert institution report, board report, announcement text, articles of association changes if necessary, valuation reports, independent audit reports and other documents depending on the structure.
A deficient application may delay the transaction. Public companies should not treat the CMB application as a final-stage formality. The legal, finance, investor relations and independent expert teams should coordinate from the beginning.
Expert Institution Opinion
The expert institution opinion is central to the protection of shareholders. Communiqué II-23.2 requires an expert institution report to determine the value of the companies or assets involved in the merger or demerger and to determine the exchange ratios. The report must include an opinion that the exchange ratio is fair and reasonable. The communiqué also requires at least three valuation methods to be considered, taking into account the characteristics of the relevant companies.
This requirement is particularly important in public company transactions because minority shareholders generally do not negotiate the exchange ratio individually. They rely on public disclosure and expert review. If the exchange ratio undervalues the public company or overvalues another transaction party, shareholders may suffer dilution or economic loss.
Where real estate fair values are used in the expert opinion, the communiqué provides that such values must be determined by real estate appraisal companies under the CMB’s relevant regulations; if a CMB-compliant real estate appraisal report already exists, it must be considered in the expert institution opinion.
Exchange Ratio and Shareholder Protection
The exchange ratio determines how shareholders of the merging or demerging companies receive shares in the resulting structure. In a merger, shareholders of the absorbed company may receive shares in the acquiring company. In a demerger, shareholders may receive shares in the transferee company or companies depending on the structure.
The exchange ratio must be fair and reasonable. A defective ratio can harm shareholders by diluting their economic participation or giving them shares that do not reflect the true value of their original investment. This is why the expert institution report is legally significant.
In practice, exchange ratio disputes may arise from inappropriate valuation methods, outdated financial statements, hidden liabilities, related-party balances, real estate valuation problems, contingent liabilities, tax risks, goodwill assumptions, debt treatment or synergy assumptions. Directors should therefore ensure that the expert institution receives complete and accurate information.
Public Disclosure During the Process
Public disclosure is mandatory throughout the transaction. Communiqué II-23.2 requires disclosure of key events and documents under the CMB’s material event disclosure rules. If at least one party’s shares are traded on the exchange, the relevant information and documents must be disclosed through KAP and on the companies’ websites; for non-listed public companies, disclosure is made through the CMB and company websites where applicable.
The communiqué specifically requires disclosure when the management body decision is adopted, when an application is made to the CMB, when the expert institution opinion is signed, when the merger or demerger agreement or plan is signed, and when the merger or demerger report is prepared.
This disclosure sequence prevents the market from being informed only at the end of the process. Investors should know that a merger or demerger is being considered, what stage the process has reached, and which documents are available for review.
Documents to Be Disclosed Before the General Assembly
Communiqué II-23.2 requires important documents to be disclosed at least 30 days before the general assembly meeting where the merger or demerger will be approved. These include the CMB-approved announcement text, merger agreement or demerger agreement or plan, merger or demerger report, last three years’ financial reports, expert institution report, estimated opening balance sheet after the merger, independent audit reports if any, interim financial reports if any, and real estate appraisal reports if any.
This 30-day rule is a major investor protection mechanism. Shareholders need time to evaluate the transaction before voting. A merger or demerger can fundamentally change the company, and shareholders should not be asked to vote without access to the core documents.
The communiqué also requires disclosed information and documents to remain on the relevant companies’ websites for at least five years. This ensures that investors, creditors and potential claimants can access historical transaction documents even after completion.
General Assembly Approval
A merger or demerger involving a public company generally requires general assembly approval after the CMB approval and disclosure process. The general assembly stage is where shareholders vote on the transaction after reviewing the required documents.
The general assembly agenda should include sufficient information about the transaction, the announcement text, exchange ratio, expert opinion, board report, financial statements and whether withdrawal rights arise. If the transaction qualifies as a significant transaction, shareholders who attend the general assembly, vote against the decision and have their dissent recorded in the meeting minutes may have the right to sell their shares to the company under the relevant rules.
For listed companies, the timing and content of general assembly disclosures are critical. Any deficiency may create grounds for investor complaints, CMB review or litigation.
Significant Transactions and Withdrawal Right
Not every merger or demerger automatically produces the same shareholder exit rights. Under the significant transaction framework, certain mergers and demergers may qualify as significant transactions if they meet the relevant criteria. The SPK’s listed company obligations page states that being a party to merger or demerger transactions, type conversion, termination, transfer of all or an important part of assets, significant changes in field of activity, privilege creation or modification, delisting, and certain related-party asset acquisitions may be considered significant transactions if they meet the criteria under Communiqué II-23.3.
The same SPK guidance states that shareholders or their representatives who attend the general assembly meeting concerning significant transactions, vote negatively and record their dissent in the minutes have the right to sell their shares to the company. It also states that the reasoned board decision regarding significant transactions must be publicly disclosed together with the withdrawal right exercise price, including the votes of independent board members.
This is highly important in mergers and demergers. A restructuring that materially changes the company may force shareholders to choose between staying in a transformed company or exiting at the legally calculated price.
Withdrawal Right Price
The withdrawal right price must be disclosed with the reasoned board decision where the merger or demerger qualifies as a significant transaction. The calculation method depends on whether the company is listed, the relevant CMB communiqué, trading data, valuation rules and the nature of the transaction.
For listed companies, market price data usually plays an important role. For non-listed public companies, valuation becomes more central. In all cases, the company should disclose the price clearly and explain the legal basis.
Directors must be careful because withdrawal right price directly affects shareholder rights and company cash outflow. If many shareholders exercise the right, the company may face liquidity pressure. Therefore, the transaction should be evaluated not only legally but also financially.
Mergers and Demergers as Investor Protection Events
A merger or demerger can affect investors in several ways. It may change the risk profile of the company, dilute shareholders, transfer assets, alter debt levels, affect dividends, change corporate governance, introduce new controlling shareholders, or change market expectations.
The capital market rules protect investors through CMB review of the announcement text, expert institution opinion, public disclosure, 30-day document availability, general assembly approval, withdrawal rights where applicable, and liability rules for false or incomplete disclosure.
However, investor protection does not mean that every merger or demerger will be economically beneficial. A transaction may be lawful but commercially unsuccessful. Investors should review all documents carefully, especially the expert report, financial statements, board report, transaction rationale, exchange ratio, debt allocation and post-transaction balance sheet.
Simplified Mergers and Demergers
Communiqué II-23.2 also includes simplified merger and demerger provisions. The CMB’s 2013 press release states that simplified merger and demerger provisions were reorganized under the communiqué.
Simplified procedures may be relevant in group restructurings, subsidiary mergers or transactions where the risk of shareholder conflict is lower. However, simplified does not mean unregulated. Public company status still requires disclosure and CMB compliance where applicable.
A company considering simplified procedure should confirm that all legal conditions are met. Incorrectly using simplified procedure may invalidate steps, delay the transaction or create investor objections.
Financial Statements and Independent Audit
Financial statements are central to merger and demerger analysis. The CMB’s 2013 announcement states that new provisions were introduced regarding financial statements used as the basis for merger and demerger transactions.
The transaction documents must allow shareholders to evaluate the current and post-transaction financial position of the company. Financial statements, interim reports, independent audit reports and estimated opening balance sheets help investors understand whether the transaction changes assets, liabilities, equity, profitability and debt exposure.
If the financial statements are inaccurate, the expert opinion and exchange ratio may also be defective. Directors should ensure that financial data is updated, audited where required and consistent across all transaction documents.
Liability for Announcement Text and Public Documents
Liability is a major issue. Communiqué II-23.2 expressly states that CMB approval of the announcement text does not guarantee the accuracy of the information in the announcement text, merger or demerger agreement, demerger plan, merger or demerger report, or expert institution opinion. It also states that Article 32 liability provisions of Capital Markets Law No. 6362 apply to announcement texts and other documents required for public disclosure.
This means that issuers, directors, signatories, experts and other responsible persons may face claims if documents contain false, misleading or incomplete information. Examples include hidden liabilities, incorrect exchange ratio assumptions, incomplete disclosure of related-party effects, omitted litigation, inaccurate asset values or misleading synergy claims.
CMB approval cannot be used as a complete defense. The company and responsible persons must ensure the content is true, complete and balanced.
Role of Directors and Independent Board Members
Directors have a heightened duty in public company mergers and demergers. They must evaluate whether the transaction is in the company’s interest, whether shareholders are treated fairly, whether the exchange ratio is reasonable, whether documents are accurate and whether legal procedures are followed.
Where the transaction qualifies as a significant transaction, the SPK states that the reasoned board decision must be disclosed together with the votes of independent board members and the withdrawal right exercise price. This requirement gives special importance to independent directors. Their vote and reasoning may affect investor confidence and later liability analysis.
Directors should not approve merger or demerger transactions mechanically. They should review valuation assumptions, ask questions, request legal opinions, examine related-party issues, consider withdrawal right cash impact and document the reasoning in board minutes.
Related-Party Risks
Many public company mergers and demergers occur within group structures. A listed subsidiary may merge with an unlisted affiliate, or valuable assets may be transferred to another group company through demerger. These transactions create related-party risks.
If the controlling shareholder benefits disproportionately from the transaction, minority shareholders may suffer. For example, an unlisted group company may be overvalued in a merger with a listed company, causing dilution of public shareholders. Or a demerger may transfer profitable assets away from the listed entity.
Therefore, related-party transactions in merger and demerger structures require careful review under corporate governance rules, valuation rules, public disclosure duties and the prohibition on disguised profit transfer. Boards should obtain independent expert advice and disclose conflicts transparently.
KAP Disclosure Strategy
For listed companies, KAP disclosure strategy is essential. The company must disclose key steps promptly and accurately. The disclosure should not be promotional or vague. It should explain the transaction type, parties, purpose, expected structure, board decision, CMB application, expert report, agreement or plan, general assembly timing and shareholder rights.
A poor disclosure strategy may create market rumors, price volatility and investor mistrust. Conversely, clear disclosure helps investors understand the process and reduces legal risk.
The SPK’s listed company obligations page states that material information and continuous information must be disclosed through KAP, and that special situation disclosures must generally be made immediately when the information arises or becomes known. This applies strongly to merger and demerger processes.
Creditor Protection and Liability Allocation
Mergers and demergers affect not only shareholders but also creditors. Liabilities may transfer, companies may be dissolved, assets may be separated, and debt repayment capacity may change. Turkish Commercial Code principles and transaction documents must be reviewed for creditor protection.
In capital market transactions, creditor protection is especially important where debt securities are outstanding. Bondholders may need to understand whether the merger or demerger affects issuer creditworthiness, guarantees, covenants, repayment capacity or security.
Public companies should disclose material effects on debt and creditor rights. If a demerger moves assets away from a company with outstanding debt securities, investors may raise serious objections.
Borsa İstanbul and Listing Consequences
A merger or demerger may affect listing status. If a listed company merges into another company, if a new listed entity is created, or if the public company ceases to exist, Borsa İstanbul rules and CMB procedures become relevant. Market segment, free float, share registration, trading suspension, share conversion, new ISIN creation and listing continuity may all require analysis.
The CMB’s 2013 press release specifically states that new principles were determined for merger transactions of publicly traded companies with non-traded companies that could cause significant changes in their capital. This reflects the need to protect market investors when a listed shell or listed company structure is used in a major transformation.
Companies should coordinate with CMB, Borsa İstanbul, MKK and intermediaries early to prevent operational problems in share conversion and trading.
Tax Considerations
Mergers and demergers often have tax consequences. Tax-neutral restructuring may be possible under Turkish tax law if specific conditions are met, but capital market compliance is separate from tax compliance. A transaction may be tax-efficient but still problematic under CMB rules if disclosure, valuation or shareholder rights are not properly handled.
Tax issues may include corporate tax neutrality, VAT, stamp tax, real estate transfer effects, tax losses, deferred tax assets, transfer pricing and cross-border tax consequences. Public companies should ensure that tax assumptions are disclosed where material and reflected properly in financial statements.
Practical Checklist for Public Companies
A public company planning a merger or demerger should follow a structured process:
First, identify the transaction type and parties. Second, determine whether Communiqué II-23.2 applies. Third, evaluate whether the transaction is also a significant transaction under Communiqué II-23.3. Fourth, prepare board decisions and disclose material events through KAP. Fifth, appoint the expert institution. Sixth, prepare the merger agreement, demerger agreement or demerger plan. Seventh, prepare the board report and announcement text. Eighth, submit the required CMB application. Ninth, disclose required documents at least 30 days before the general assembly. Tenth, hold the general assembly and manage withdrawal right procedures if applicable. Eleventh, complete trade registry, MKK and Borsa İstanbul procedures. Twelfth, preserve documents and keep website disclosures for the required period.
Practical Checklist for Investors
Investors should carefully review the following:
The CMB-approved announcement text.
The merger or demerger agreement or plan.
The expert institution report.
The exchange ratio.
The last three years’ financial reports.
The estimated opening balance sheet.
Independent audit reports.
Real estate appraisal reports if applicable.
Board report and reasoning.
Independent board member votes.
Whether the transaction is a significant transaction.
The withdrawal right exercise price.
General assembly date and voting procedure.
Potential dilution or change in risk profile.
Investors should not rely only on headlines. The economic effect of a merger or demerger depends on valuation, asset allocation, debt allocation, exchange ratio and post-transaction governance.
Common Legal Mistakes
Common mistakes include starting the transaction before proper board decisions, failing to apply to the CMB in time, preparing an incomplete announcement text, using weak valuation methods, failing to disclose documents 30 days before the general assembly, ignoring withdrawal right rules, omitting independent director votes, failing to disclose related-party conflicts, using outdated financial statements, underestimating MKK and Borsa İstanbul operational issues, and treating CMB approval as a guarantee of fairness.
Another common mistake is focusing only on corporate law and ignoring capital market law. A public company merger or demerger must satisfy both the Turkish Commercial Code and CMB rules. Compliance with one does not automatically satisfy the other.
Conclusion
Mergers and demergers of public companies in Turkey are regulated, high-liability transactions under Turkish Capital Market Law. The central regulation is Communiqué on Merger and Demerger II-23.2, which applies to merger and demerger transactions where at least one party is a publicly held corporation. The communiqué requires CMB approval of an announcement text, preparation of expert institution opinion, public disclosure of key steps and documents, and disclosure of core transaction documents at least 30 days before the general assembly.
For listed companies, mergers and demergers may also qualify as significant transactions under the separate significant transactions and withdrawal right framework. Shareholders who attend the relevant general assembly, vote against the transaction and record their dissent may have the right to sell their shares to the company if the legal conditions are met.
For companies, the process requires careful coordination among the board, legal counsel, financial advisors, valuation experts, auditors, investor relations teams, CMB, Borsa İstanbul and MKK. For directors, it creates responsibility for accurate disclosure, fair valuation and protection of shareholder interests. For investors, it requires careful review of the expert report, exchange ratio, financial statements and withdrawal right price.
In conclusion, public company mergers and demergers in Turkey are not ordinary restructuring transactions. They are capital market events that may reshape shareholder rights, market value and corporate control. Any public company, controlling shareholder, minority investor, director, expert institution or transaction party involved in a merger or demerger in Turkey should obtain professional legal advice before taking action.
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