Turkey: Special Purpose Acquisition Companies

Special
Purpose Acquisition Companies ("SPAC"),
which are incorporated to achieve the purpose of investing and merging with a non-public
company, were first introduced in the United States in 1990s and recently increased
its popularity globally. Unlike other countries, SPACs entered into Turkish
legal system relatively late with the Communiqué on Common Principles Regarding
Significant Transactions and Appraisal Right (Communiqué No. II-23.1) of the
Capital Markets Board ("CMB"), published
in the Official Gazette dated 24.12.2013 numbered 28861("Appraisal Right Communiqué"). Currently, there is no SPAC listed
under Borsa Istanbul ("BIST") in
Turkey. SPACs are very similar to venture capital structure and can be
considered as a strong alternative for investors
and shareholders in Turkey as well.

I. Introduction

Special
Purpose Acquisition Companies ("SPAC"),
which are incorporated to achieve the purpose of investing and merging with a non-public
company, were first introduced in the United States in 1990s and recently increased
its popularity globally. Unlike other countries, SPACs entered into Turkish
legal system relatively late with the Communiqué on Common Principles Regarding
Significant Transactions and Appraisal Right (Communiqué No. II-23.1) of the
Capital Markets Board ("CMB"), published
in the Official Gazette dated 24.12.2013 numbered 28861("Appraisal Right Communiqué"). Currently, there is no SPAC listed
under Borsa Istanbul ("BIST") in
Turkey. SPACs are very similar to venture capital structure and can be
considered as a strong alternative for investors
and shareholders in Turkey as well.

II. Characteristics
of SPACs

Article 4/1(a) of the
Appraisal Right Communiqué defines SPACs as well as the exemptions and
limitations that will apply. In general, Article 4/1(a) describes SPACs as
joint stock companies bearing the phrase "special-purpose acquisition company" in their title, incorporated for
the purpose of publicly offering at least half of their shares which will
represent the capital after going public and merging thereafter with a
non-public company in which SPACs intend to invest, in line with a timing and
investment strategy predetermined by the prospectus filed during initial public
offering ("Prospectus"). In this respect, characteristics of SPACs
inferred from Article 4/1(a) could be listed as follows: 

–         
SPACs ultimate purpose is to merge with a non-public
company ("Target Company") after going
public. To achieve this purpose, SPACs can determine potential Target
Companies, negotiate with them, conduct legal, financial and tax due diligence
and hire consultants for such purposes.[1]

–         
SPACs can use up to ten percent of the proceeds from the public
offering for their activities. It is important to note that the activities
should be specified in SPACs' articles of association and/or in the Prospectus.

–         
SPACs undertake, until the merger is completed, to
utilize the proceeds of the initial public offering by investing in investment
instruments such as deposits, government debt securities and similar
instruments. Accordingly, SPACs are required to explain their cash management
policies to the public with the Prospectus.

–         
SPACs are required to return any remaining amount from
the proceeds to the non-founding shareholders in the event the intended merger
is not completed within the predetermined time period.

–         
SPAC shareholders might
benefit from voluntary buy back provisions instead of appraisal rights.

As
it can be ascertained from their characteristics, SPACs, when compared with
other types of public companies, have many advantages. For example, unlike
private equities, SPACs do not have to spend much time and effort to find
financing since they can use the money collected through going public instead
of searching for investors.[2] Additionally,
from the perspective of the Target Company,
SPACs offer a cheaper and simplified public offering process and allow the
Target Company to become public (indirectly) even if it does not satisfy initial
public offering criteria defined under relevant capital markets law
regulations.[3]

In accordance with the principles above and the
provisions contained in Turkish Commercial Code numbered 6102 ("TCC"), SPAC will be incorporated as
non-public joint stock company. Subsequently, SPAC will offer its shares to the
public as per CMB regulations. The regulations, for
instance, require all of SPAC's capital to be paid, SPAC to use authorized
institutions when going public, amend its articles of association and obtain
approval of CMB etc. Different from such rules, Article 4/1 (a) of the Appraisal
Right Communiqué also requires SPAC to publicly offer at least half of its
shares that will represent its capital after going public. When calculating
such percentage, total capital of SPAC including the shares offered to the public will be taken into consideration.[4]

Lastly, SPACs will have to apply to BIST within
two years after going public, provided that they do not merge with the Target
Company or dissolve as a result of not merging within the intended time period.
In order to get listed, SPACs will have to satisfy the conditions stated under Article
11 of the Quotation Regulation of BIST. According to Article 11, (i) market
value of SPACs' publicly offered shares must be minimum TRY 200 million and the
ratio of its offered shares to paid-in or issued capital after public offering
must be at least 50%, (ii) at least 80% of SPACs' shares offered to public must
have been sold to institutional investors, (iii) the ratio of total shares held
by SPACs' founders, board members and authorized managers to the capital of
SPAC must be at least 10%; and (iv) SPACs' founders, board members and
authorized managers should undertake not to sell the shares they held before
public offering inside or outside BIST from the date of public offering until
the merger and for 12 (twelve) months following the merger. However, the new company will have to apply to BIST instead
of SPAC and satisfy other conditions under the Quotation Regulation if the
merger occurs within the two year period since SPAC will either dissolve or
lose its status as a special acquisition company following the merger.[5]

III. SPAC Mergers

Mergers
of public companies are mainly regulated with the Communiqué on Mergers and
Demergers (Communiqué No. II-23.2) published in the Official Gazette dated
28.12.2013 numbered 28865 ("Merger
Communiqué"). Although there are several exemptions under CMB regulations, general
rules of the Merger Communiqué are applicable to SPACs and the Target Company. As
a result, both companies will take board of director and general assembly
resolutions, apply to CMB, obtain opinion of expert institution, prepare merger
agreement/report and make public announcement. In this context, exemptions granted
to the SPACs with the CMB regulations could be briefly explained as follows:

–         
Restrictions regarding mergers that could result in change
of control will not apply to SPACs. 
According to Article 12/4 and Article 12/5 of the Merger Communiqué,
mergers where public company's shareholders end up as minority shareholders are
prohibited. However, SPACs will be able to merge with companies with greater
net assets and end up being the minority since they fall into the exemption.[6]

–         
Pursuant to Article 4/1 (b) of the Merger Communiqué SPACs
will acquire, within the scope of the
price and other terms defined under the Prospectus, the shares of (i) the shareholders who voted against the
merger in the general assembly meeting and (ii) the non-founding shareholders
in case of dissolution of SPAC, instead of acquiring shares in line with appraisal right provisions.

–         
In the event where the SPAC is the acquirer and a
change of control happens as a result of the merger, SPAC can be exempted from
making tender offer to the shareholders who have voted against the merger as
per Article 18/1 (d) of the Communiqué on Takeover Bids (Communiqué No.
II-26.1), as long as SPAC buys such shares in accordance with the buy-back
provisions. Unlike the other exemptions, an application has to be made to CMB
in order to benefit from this exemption.

–         
Share sale restrictions will not apply to mergers
where SPACs are a party. According to Article 6 and Article 7 of the Merger
Communiqué, if the acquiring company's shares were not traded in the exchange
before the merger, such shares cannot be sold in the exchange in 6 the (six)
month period after the date the acquiring company's shares began to be traded
in the exchange. As a result of the exemption, SPACs will be able to trade such
shares in the exchange.

On
the other hand, it is important to note that SPACs can only become the acquired
company if the Target Company is a joint stock company since only shares of
joint stock companies can be publicly traded in the capital markets.

Finally,
SPACs will dissolve and enter into liquidation process in accordance with the
TCC if they cannot find the Target Company or complete the merger transaction due
to other reasons (e.g. shareholders reject the proposed company in the general
assembly meeting) within the intended time period. In such case, SPACs will buy
shares of the non-founding shareholders before liquidation process as per the
voluntary buy back provisions.

IV. Conclusion

While
the SPACs have been introduced to the Turkish legal system with the Appraisal
Right Communiqué in 2013, it is still not a preferred option in Turkey,
regardless of the easier merger structure and advantages provided by the CMB.
However, with the rising trend of incorporating SPACs in other countries, it is
likely that Turkish investors will be inclined to use SPACs as an investment
tool in the future.

Authors: Gönenç Gürkaynak, Esq., Damla
Doğancalı and Defne Kahveci of ELIG Gürkaynak Attorneys-at-Law

(First published
by Mondaq on October 15, 2019)

[1] Derin Altan
& Nil Acar, Yeni Bir Alternatif Yatırım Aracı: Birleşme Amaçlı Ortaklıklar,
Dokuz Eylül Üniversitesi Hukuk Fakültesi Dergisi vol.16, 1, 251-268 (2014)

[2] Nilsson, Gül Okutan,
Sermaye Piyasası Hukukunda Birleşme Amaçlı Ortaklık 58 (1st ed. 2016)

[3] Id. at 68

[4] Id. at 75

[5] Id. at 219

[6] Id. at 190