The competitive structure of the free market economy, the desire of companies to increase their market dominance with integrated production or services, to meet the needs and to reduce costs while reaching their goals, directs companies to merge by taking over another company or merging with other companies in a new company. While mergers and acquisitions are important in every sector, it gains importance in the energy sector to keep up with the rapidly developing technology and to keep up with the increasing energy demand on a global scale.
The merger which can be between domestic companies or between domestic and foreign companies. The merger preferences of companies vary according to the time-varying economic conjecture of the country they are located in. as well as according to the developments in the global economy. The increase in competition in the stages of raw material supply, production processes and market access causes a direct proportional increase in mergers. The conveniences in these situations cause companies to prefer to protect their independent structures.
Mergers provide companies with many positive opportunities in terms of addressing the common market, increasing accessibility, efficient use of resources, reducing risks, minimizing tax liabilities, increasing prestige and profitability, increasing the capacity to withstand competition, and management, cost and profit. Beside preferences of the companies vary according to the economic conjuncture of the country in w ides the positive impacts of company mergers; if the merger cannot be accomplished with a successful management, the negative effect of decisions based on disagreements as a result of the merger of different managements on the operational processes, the inability to adapt the corporate structures of the merging companies to each other are counted as the negative effects of the mergers.
There are many different types of mergers, but common types are known as horizontal vertical mergers, conglomerate mergers and conglomerate mixed mergers. A horizontal merger is defined as one business acquiring another that is in direct competition with it. A vertical merger is defined as one business acquiring another that belongs to the same supply in a pure conglomerate merger, the companies are completely unrelated in their product offerings. In a mixed conglomerate merger, the companies are looking to expand their product offerings or market reach by joining with another company.
The main purpose of horizontal mergers is to increase the competitive power with rival companies and increase the market share in the sector. In addition to these, mergers are preferred because they provide many economic benefits, especially cost reduction a natural effect of the mergers. Also, the benefit of horizontal mergers in production and marketing activities provides these companies with control over market prices, and gives them the right to set prices and intervene to the extent permitted by the legislation. Vertical mergers, on the other hand, are formed by the coming together of companies whose fields of activity are the sub-market and upstream market of the same sector.
In that type which has a wider field of activity and market area than a horizontal merger, the company operating in the upstream market integrates with the company operating in the downstream market, and the merger provides multiple benefits to the companies in terms of market dominance at both production and supply points.
Except for the multiple mergers of horizontal and vertical companies, there are also mixed or multi-market mergers arising from the mergers of companies that are not horizontally or vertically related this merger. In these mergers, the complementarity of the products of the companies with each other is taken as a basis and it is aimed to supply different products that appeal to the common market from a single point. In the analysis of the merger activities of the Capital Markets Board and independent audit companies by years, it has been seen that mixed agreements are less preferred due to the fact that mergers are subject to a more difficult process, in which mergers are generally made horizontally and vertically. As a type of transaction, it has been observed that the majority is realized by acquisition.
In the sectoral distribution of mergers, the food, agriculture, forestry, fisheries and livestock sectors mostly merged, followed by chemical, petroleum and petrochemical companies, Afterwards, it was concluded that mergers in the energy sector came and ranked in the top three after the sectors mentioned. Although the food sector takes the lead in mergers in terms of the number of transactions, the energy sector ranks first in terms of transaction value. In addition, It has seen that mergers in the energy sector have an increasing trend in terms of the number of transactions depending on the increasing merger preferences.
However, the highest transaction value on a country basis is in Turkey, followed by Spain, England, USA, Malaysia and Russia. The reason for the increase in the merger process and value in our country was the increase in investments in Turkey by European countries and the USA, as well as countries such as Malaysia, China, Qatar, and the acquisition of domestic companies by foreign companies due to increasing privatization practices. In Turkish law, although the procedures and principles have been regulated in the 136th and the following articles of the Turkish Commercial Code No. 6102, mergers of companies and their results have been regulated by an interdisciplinary legal framework, especially in the Competition Law and Tax Law legislation.
The reason is to prevent the benefits that the mergers will provide to the merging companies from harming the free market, other companies or the public, and determine the limits of their rights and obligations. For this purpose, the Mergers and Divisions Communiqué (II-23.2) prepared within the scope of the Capital Markets Law No. 6362 regulates the procedures and principles of the merger transactions of companies in which at least one of the parties is a publicly traded company. Also, the taxation principles to be applied to merger transactions are regulated by the 18th and the following articles of the Corporate Tax Law No. 5520.
In Article 136 of the Turkish Commercial Code, a merger is defined as the formation of a new company by two or more companies losing their legal assets, or the joining of one or more companies to another company. In the merger through takeover(acquisition) the legal entity of the transferred company ends, and all rights and obligations are transferred to the
transferee company. Likewise, in a merger in a new company, the legal entities of the merged companies end, and their rights and obligations are transferred to the new company.
The Turkish Commercial Code restricts the right to merge according to the types. In this context, while Companies with share capital and Cooperatives have the right to merge in every adj. with each other, they have the opportunity to merge with collective companies, partnership companies only if they are the transferee companies. Likewise, partnership companies can merge directly with partnership companies, while they have the right to merge with companies with share or cooperatives only as a transferee company.
Companies with business entity also have the right to merge with commercial companies in the capacity of transferee. Shareholders of the transferee company have the right to claim on the shares of the transferee company at a value to meet their previous partnership shares and rights. These rights can be used in the form of being a direct stakeholder on the shares and rights or receiving a withdrawal fund in proportion to their rights.
When merger and acquisition transactions are examined in terms of Competition Law, first of all, Competition Law legislation and its practitioners have prioritized not to harm the continuity of the free market economy. For this reason, they wanted to ensure that companies that have reached a certain market power in the sector or in the market in general, do not engage in an activity that aims to abuse their power, in other words, their dominant position in the market, while pursuing their profit targets. While these limits are being drawn, the strengthening of companies as a natural process is not prevented, however, while protecting this right of companies, it is observed that the balance element of the markets is not disturbed.
The importance of the issue for companies that already have a certain power in the sector or in the market combine their power and market dominance and move to a superior position. The regulation in this field has been made with the Law on the Protection of Competition No. 4054.The aforementioned law defines the dominant position, which expresses the power of one or more companies in a certain market to determine economic parameters such as price, supply, production and distribution amount by acting independently of their competitors and customers. In terms of our subject, in Article 7 on Mergers and Acquisitions, it is unlawful for more than one company to merge or acquire a dominant position in the first place or to strengthen their dominant position, in a way that results in a significant reduction of effective competition in any goods or services market in the whole or a part of the country. mentioned and prohibited. However, the legal validity of mergers and acquisitions has been subject to the permission of the Competition Board.
Merger and acquisition transactions that will be subject to the permission of the Competition Board are specified in the Communiqué No. 2010/4 on Mergers and Acquisitions Requiring Permission from the Competition Board.
According to the Communiqué, the main element of mergers and acquisitions is permanent change in control. Cases where there is no change in control or control is acquired by a public institution or organization are not counted as mergers or acquisitions. Change of control means that having rights that enable the possibility of exercising decisive influence on a company or by establishing a contractual relationship, through the purchase of shares or assets.
In merger or acquisition transactions, the total turnover in Turkey is 750.000.000 TL and the Turkish turnover of at least two of the transaction parties separately is 250.000.000 TL, or in the acquisition transactions, the Turkish turnover of at least one of the transaction parties is 250,000.000 In case the world turnover of .3.000.000. 000 TL and at least one of the other transaction parties exceeds. It is obligatory to obtain permission from the Competition Board in order for the transaction to gain legal validity. On the other hand, actions that are prohibited between companies in terms of competition law are the conclusion of contracts with the aim of preventing, distorting or restricting competition and taking actions for this purpose.
In the special manifestation of the subject;
- Determining the purchase or sale price and conditions of goods or services,
- Sharing or controlling all kinds of market resources or elements with the division of markets for goods or services,
- Controlling the amount of supply or demand of goods or services or determining them outside the market, making it difficult or restricting the activities of rival undertakings, or taking the undertakings operating in the market out of the market by boycott or other behaviours, or preventing new entrants to the market.
- With the exception of exclusive dealership, applying different conditions to persons in equal status for equal rights, obligations and actions,
- Contrary to the nature of the agreement or commercial practices, it is obligatory to purchase a good or service together with another good or service, or a good or service demanded by buyers in the case of an intermediary enterprise is conditional on the display of another good or service by the buyer, or a supplied It has been observed that it is prohibited to put forward conditions regarding the re-supply of goods or services.
Furthermore, in the sense of abuse of dominant position, it is not allowed for one or more companies to abuse their dominant position in a market for goods or services in the whole or in a part of the country, either alone or through agreements with others or by acting together.
The following are listed as cases of abuse:
- Actions aimed at directly or indirectly preventing another undertaking from entering the field of commercial activity or complicating the activities of competitors in the market,
- Directly or indirectly discriminating against buyers in equal status by asserting different conditions for the same and equal rights, obligations and actions,
- In case of resale, such as the purchase of other goods or services along with a good or service, or the condition that a good or service demanded by buyers in the case of intermediary undertakings is also subject to the display of another good or service by the buyer, or a purchased good is not sold below a certain price. imposing restrictions on trading conditions,
- Actions aimed at disrupting the conditions of competition in another good or service market by taking advantage of the financial, technological and commercial advantages created by the dominance in a particular market,
- Restriction of production, marketing or technical development to the detriment of the consumer.
In addition to general explanations, when the details of mergers and acquisitions in the energy sector are examined, the unique structure of the sector is seen. Compared to other sectors, the increase in demand in the sector due to subsequent privatizations and the driving force created by the need for energy supply made mergers in the energy sector inevitable. Sector companies are in an effort to integrate the process from raw material procurement to supply stage in this competitive market. However, the energy sector operates as a regulated market, subject to the supervision and control of the administration, especially the Energy Market Regulatory Authority, in order to ensure supply security in the realization of the objectives and to protect the mutual interests of the parties in the sector.
In this state, in order to carry out mergers or acquisitions in the energy sector, the duties arising from the Competition Law must be fulfilled, but the requirements of the Energy Market Regulatory Authority and the legislation to which the institution is subject must also be fulfilled and the permission of the institution must be obtained after the inspection. Although the bureaucratic processes and the situation of permits against the pace of commercial life are controversial, the transparency of the sector actors as a natural result of a regulated market provides investors the opportunity to research and follow the company, which is subject to merger or acquisition, in general terms.
In this way, sector investors can see the expectations they can obtain from the sector about their investments and analyse the company they are interested in in terms of mergers or acquisitions.
The point that the energy sector investors should pay attention to in merger or acquisition transactions, whether on the transferor or the transferee side, is to analyse the due diligence process regarding the company to be merged and the merger correctly in terms of compliance with technical, legal, financial and administrative procedures.
Within the scope of Article 223 of the Turkish Code of Obligations No. 6098, the view of the buyer’s obligation to review the purchase to be made and to inform the seller in the energy sector emerges as the Due Diligence process. This situation arose from the need to make detailed analyses of the company subject to the transaction and to clearly reveal the risks and benefits, before the merger or acquisition, in order to ensure the sustainability of the sector in the face of high installation and operating costs.
The companies that are the actors of the merger or acquisition are also obliged to act prudently with the 18/2 article of the Turkish Commercial Code No. 6102, since they have the title of prudent merchant.
Transparency of the sector is positive in terms of company merger or acquisition due diligence. However, data on technical, commercial or financial processes, whether sector-based or not, may not be the same transparency in every company.
In this case, it is beneficial to make a preliminary contract, in other words an Engagement Letter, in which the relationship between the parties, audit processes, transparency and goodwill will be clearly revealed before the main contract subject to the merger or acquisition. In this way, the mutual expectation differences of the parties will be eliminated.
In any case, the mutual demands of the companies regarding their rights and responsibilities against defects can be met within the scope of the liability provisions of the Code of Obligations and the special regulations of the Commercial Code. On the other hand, in order to protect competition in the sector, with Article 5 of the Electricity Market Law No. 6446, it is stipulated that capital share changes of five percent in publicly held companies and ten percent or more in other companies are subject to the permission of the Energy Market Regulatory Board. In addition, in article 7 of the same law: “The total amount of electricity generation that any real or private sector legal entity can produce through the generation companies it controls cannot exceed twenty percent of the total electrical energy production amount of Turkey published for the previous year.” With this provision, the activities of companies are limited in order to prevent monopolization.
In accordance with these provisions, it is necessary to pay attention not to exceed the legal limits in terms of energy to be produced through merger or acquisition transactions. Likewise, as a requirement of being a regulated market, companies in the sector can operate with licenses granted by the Energy Market Regulatory Authority according to their activities. In this case, it is necessary to determine whether the company subject to the merger or acquisition has a valid license, and whether the license requirements are maintained or moved after the merger or acquisition.
Another examination that needs to be done in due diligence is to investigate whether the energy company subject to the merger operates in accordance with the environmental legislation and has the necessary permits.
Companies operating in violation of environmental legislation may face administrative sanctions such as temporary suspension or fines, depending on the degree of violation, as well as the risk of termination of their activities, such as cancellation of their licenses and suspension of their activities.
It is also important to analyse the connection and system usage agreements specific to electricity generation facilities, whether the company subject to the merger has a valid connection agreement, whether there is an act in violation of the agreement and the risks after the merger within the scope of the agreement.
Another issue that applies to the entire energy sector is the obligation to take out insurance with the provisions of Article 39 of the Electricity Market License Regulation, Article 34 of the Natural Gas License Regulation or Article 49 of the Petroleum Market License Regulation, insurance companies are obliged to protect the assets related to their activities or to compensate the damages they may cause to third parties. This issue is also important in terms of examining the existence of mergers and acquisitions or deciding by whom it will be done. Also, an issue that should be considered in terms of determining the legal situation is the determination of the cases in which the companies subject to the merger are or may be a party. The initial qualifications may be cancelled as a result of the lawsuit and become unusable, or if a lawsuit filed due to environmental and other legal violations is concluded against it, the cancellation of the activity may also be faced with sanctions arising from environmental damage.
In summary , it is important to investigate the permits and conditions specific to the place where the company subject to the merger operates. This research covers compliance with licenses and other permits to be given by local administrations or civil administrations, especially examining the title deed of the place of activity. Violation of these issues still carries the risk of termination of activities or administrative sanctions.
In summary, in this article where we examine the details of company mergers in the energy sector. It is aimed to draw attention to Due Diligence researches in mergers or acquisitions of energy sector companies that are subject to both the control of the administration and the regulation in many areas of law. It has been tried to explain the importance of the fact that the more detailed the examinations before the merger operation, the more benefits the companies will achieve with the merger and the more they will reduce their risks.
