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Due diligence requirements
What due diligence is necessary for buyers?
Comprehensive financial, tax, operational and legal due diligence is usually carried out during M&A transactions.
Buy-side legal due diligence usually focuses on:
- existence, good standing and ownership;
- corporate governance;
- material agreements (financing agreements or any agreements material to the target's business);
- liabilities (eg, those arising from court judgments and administrative fines);
- contingencies (eg, those that may arise out of pending, potential or threatened claims, lawsuits or administrative inspections or investigations);
- regulatory issues (based on the target’s main business sector);
- environmental issues;
- competition compliance;
- employment; and
- intellectual property.
What information is available to buyers?
Certain commercial registry records are publicly accessible and these are the main source of information about targets. All companies must register the following documents with the commercial registry and have them published in the Commercial Registry Gazette:
- articles of association, including the initial amount of share capital, the address and duration of the company, as well as information on shareholders and the management board;
- resolutions by the management board (board of directors or managers) and the shareholders' meeting, if the agendas of these are subject to registration under the Commercial Code; and
- minutes of general assembly meetings.
In addition, publicly held companies are also required to maintain a website and make certain corporate information available thereon. Under the Regulation on the Websites of Capital Stock Companies and the Communiqué on Corporate Governance Principles, the following information must be available on the websites of publicly held companies:
- commercial title;
- location of headquarters;
- committed and paid-up share capital;
- board members of joint stock companies and managers of limited liability companies;
- auditors' names, surnames, residence addresses and registered branches (if any);
- trade registry information;
- up-to-date information on the shareholding and management structure;
- information about privileged company shares;
- final version of the articles of association;
- public disclosures on material events;
- financial statements and annual reports;
- prospectus and further documents subject to public disclosure;
- agendas, attendance list and minutes of general assembly meetings;
- form for proxy voting at the general assembly meeting;
- mandatory information forms prepared for proxy solicitation and similar forms;
- takeover bids;
- buy-back policy;
- distribution of profit policy;
- information policy;
- information on related party transactions;
- ethical rules formed by the company;
- frequently asked questions and relevant answers; and
- for group companies, information on share transfers or acquisitions by an undertaking in a group of companies for the amounts stated in Article 198 of the Commercial Code (such disclosures must be made within five days of the transaction date).
Further, information on assets which must be registered to public registries is also available, as follows:
- Ownership and encumbrance information for properties can be checked through land registry offices.
- Information about trademarks, patents, industrial designs and utility models registered in the Patent Institute is public and can be obtained through its website (www.tpe.gov.tr/portal/default_en.jsp).
- Ship registries provide information on ship ownership.
Owners of domain names obtained through nic.tr, which provides domain names with the ‘.tr’ extension, can be found on its website (https://nic.tr/).
What information can and cannot be disclosed when dealing with a public company?
Disclosure requirements for publicly held companies are primarily regulated by the Communiqué on Material Events (Serial II, 15.1). Accordingly, publicly held companies must disclose the following information on the public disclosure platform and the company’s website:
- inside information – material information which has not been publicly disclosed but which may influence the value of a capital market instrument or investor decision; and
- ongoing information – all other information which must be publicly disclosed and is not inside information.
The Capital Markets Board issued the Guideline on Material Events, which outlines the circumstances that must be disclosed to the public as inside information. Certain transactions conducted throughout the Merger and takeover process are deemed to be inside information which must be publicly disclosed if they are likely to have any effect on a capital market instrument’s value or on investor decisions (Article 5.5 of the guideline). In addition, the proceedings which must be publically disclosed in a merger or takeover bid process, have been regulated separately under the related Communiqués (Article 10 of the Communiqué on Takeover Bids (Serial II, 26.1) and Article 8 of the Communiqué on Mergers and Demergers (Serial II, 23.2).
How is stakebuilding regulated?
If the buyer decides to build a stake in the target before announcing the bid for the shares of a publicly held company, the following disclosure requirements apply:
- Inside information and ongoing information must be disclosed to the public according to the Communiqué on Material Events. Changes in the shareholding structure and management control are deemed ongoing information, which must be disclosed to the public.
- Disclosure requirements will apply when a person's direct or indirect shareholding acting in a publicly held company exceeds or falls below 5%, 10%, 15%, 20%, 25%, 33%, 50%, 67% or 95% of the issued share capital or voting rights. As a result, if the buyer intends to build a stake in the target by acquiring direct shareholdings, a share transfers must be publicly disclosed if the percentage of shares or voting rights acquired reaches these thresholds.
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