Ⅰ. Introduction
Mergers and acquisitions are legal and economic processes that alter the capital structures, operational activities, and market positions of companies. As a result of these changes in the company structure, various legal risks can emerge for the company’s existing shareholders, particularly minority shareholders.
Minority shareholders may not have sufficient say in merger and acquisition decisions and may also be exposed to unfair practices. Therefore, protecting shareholders’ rights within the framework of legal regulations is a critical issue.
ⅠⅠ. Shareholders’ Rights in Mergers and Acquisitions under Turkish Law
In the process of mergers and acquisitions, the rights of shareholders are determined by legal regulations. The main rights of shareholders are as follows:
1. Protection of Share Ownership and Rights
As of February 10, 2025, Article 140 of the Turkish Commercial Code (“TCC”), which regulates “Mergers” provides shareholders of the absorbed company with the right to protect their shares and rights. Shareholders can request shares and rights of equivalent value in the acquiring company. This protection is calculated by taking into account the value of the merged companies’ assets, the distribution of voting rights, and other important factors.
To ensure shareholder protection, Articles 140 and 141 of the TCC establish the following provisions:
- When determining the exchange ratios for shares, a balancing payment may be made, provided that the actual value of the shares allocated to shareholders of the absorbed company does not exceed one-tenth of their nominal value.
- Shareholders holding non-voting shares in the absorbed company must be granted equivalent shares or voting rights in the acquiring company.
- In return for privilege rights in the absorbed company, equivalent rights or suitable compensation must be provided in the acquiring company.
- The acquiring company must grant equivalent rights to the usufruct holders of the absorbed company or purchase the usufruct certificates at their actual value on the date the merger agreement is signed.
- Shareholders may be granted the right to become shareholders of the acquiring company following the merger, or only a withdrawal fee may be paid.
- The merging companies may allow shareholders to choose between acquiring shares and partnership rights in the acquiring company or a withdrawal fee corresponding to the actual value of the acquired shares.
- Additionally, to ensure transparency in the merger process, under Article 149 of the TCC, companies are obligated to make certain documents available for shareholder review before the merger. These documents must be accessible at the central and branch offices of the companies involved, or in public companies, at the places specified by the Capital Markets Board, including:
- The merger agreement
- The merger report
- Financial statements and annual activity reports for the last three years
- Interim balance sheets, if applicable
The documents specified in item iv must be made available for review at least 30 days before the general assembly decision. This aims to ensure that shareholders can access information about the merger process in a timely manner and exercise their rights consciously.
In addition, the TCC grants minority shareholders the right to file a lawsuit for the annulment of general assembly decisions made in violation of the law or the articles of association. Therefore, a lawsuit may be filed to annul a general assembly decision on a merger if it violates minority rights under the TCC.
2. Voting Rights
Merger decisions are generally adopted through voting in the general assembly meetings of the companies involved in the merger. Shareholders have voting rights proportional to their shares. However, minority shareholders may be ineffective against majority shareholders, so they may obtain privileges through a shareholders’ agreement, enabling them to have more effective mechanisms against majority shareholders.
3. Exit and Withdrawal Rights
One of the most critical rights for protecting minority shareholders is the exit right. This right allows shareholders to sell their shares for a fair price if they are not satisfied with the merger decision. This right is referred to as “withdrawal compensation” under Article 141 of the TCC, and the exit right is frequently regulated in shareholder agreements in merger and acquisition practices.
Ⅲ. Risks Faced by Minority Shareholders
In the process of mergers and acquisitions, minority shareholders may face certain risks. As a result of the merger, the influence of minority shareholders in the management may decrease or disappear completely. Since management decisions are made by majority shareholders, the interests of minority shareholders may be disregarded.
The uncertainty of the new company’s market performance following the merger may lead to fluctuations in share prices. Minority shareholders bear the risk of a decrease in the value of their shares following the merger.
If major shareholders or the company’s management fail to provide sufficient information to minority shareholders, legal risks may increase. Minority shareholders may lack adequate information on strategic decisions regarding the company’s future, leading to poor decisions.To mitigate these risks, a shareholders’ agreement can be made to require major shareholders (those holding a certain percentage of shares) to offer minority shareholders the opportunity to sell their shares.
Ⅳ. Protection of Minority Shareholders’ Rights under EU Law
The EU has introduced various regulations aimed at protecting shareholders’ rights in mergers and acquisitions. The main provisions include:
a) Mandatory Bid Rule
Under the EU’s Transparency Directive and Takeover Directive 2004/25/EC, when control of a company changes beyond a certain threshold, minority shareholders are granted the right to sell their shares. This prevents majority shareholders from taking control of a company at the expense of minority shareholders
b) Squeeze-out and Sell-out Rights
The squeeze-out right allows majority shareholders who exceed a certain threshold to force minority shareholders to sell their shares. The sell-out right gives minority shareholders the right to sell their shares at a fair price when the control of the company changes hands.
Ⅴ. Conclusion and Evaluation
In mergers and acquisitions, the protection of minority shareholders’ rights is of critical importance in terms of corporate governance principles and legal regulations. The provisions in the TCC aim to ensure shareholder protection, while international practices also include various measures to more effectively protect minority rights. Increasing transparency in merger processes, establishing fair valuation mechanisms, and respecting minority rights are key factors in strengthening investor confidence.
