01 Apr

General climate from the Hungarian Perspective: Increased state influence in Hungarian M&A transactions In Hungary, M&A transactions have been enormously driven by state activity since the last years. The party that has won the elections in 2010 with an overwhelming majority puts a lot of effort in re-shaping the economical landscape. Such reshaping affects all business sectors, especially the financial markets, the energy sector, telecommunication and media. Therefore, quite a number of foreign investors have decided to exit the Hungarian market and wind-up their Hungarian affiliates – thus inducing some M&A activity, but having rather a one-off effect. However, other players are “playing for time” in a sense that they strive to maintain a stable market position and wait for better times. If their plan works out, they will of course have the benefit that some of their (multinational) competitors have left the market. Obviously any vacuum on the provider side might be filled in with newcomers as well, creating interesting space for M&A activity. Turkish investors will be well advised to keep their powder dry for investment in the near future.

Market Overview from the Turkish Perspective

It is a fact that Turkey’s economic potential has been increasing in recent years despite recent financial uncertainties in the world. In the first half of 2013 M&A transactions volume was affected very positively. Despite global economic recession in 2013 record number of M&A transactions has been taken place in Turkey. Almost 336 M&A transactions were operated and the volume has reached out almost USD 20 billion .Over 24% of these transactions had been carried out by foreign investors.. Energy sector took an important place in M&A deals in 2013. In total, 36 M&A transactions with a USD 6 billion volume have taken place in the sector. EnerjiSA, one of the leading energy companies in Turkey, had undertaken the biggest deal in the energy sector with USD 1.7 billion privatization tender of Turkish Electricity Distribution Corporation(“TEDAŞ”).

Overview on Turkish-Hungarian business relations from the Hungarian perspective: As to the origin of the foreign investors, they are traditionally mostly US and European. However, Turkey is an active and attractive player, with even more investment being most welcome. Promotion and Protection of Mutual Investment Treaty (BITs) between Turkey and Hungary signed on 14 January 1992 and came into force on 1 April 1995. To reinforce the previous initiative Double Taxation Treaty came into force on 1 January 1995. The volume of bilateral trading has reached USD 2.1 bn in 2012, with Hungarian and Turkish officials aiming at USD 5 bn . In terms of bilateral sales of goods,  Turkey is ranking No. 5 (!) among the top business partners from outside the EU. Reported Turkish direct investment in Hungary is led by the airport ground services (Çelebi Holding) and telecommunication sectors (Türk Telekom). At the summit meeting of the two prime ministers in Ankara in December 2013, two prime ministers have concluded an agreement on setting up the Hungary-Turkey trade house and several business agreements. Moreover, a “foreign trade attaché” has newly been delegated to the Hungarian embassy in Ankara, enhancing direct investment to Hungary in the sectors of environment, automotive, energy, life-science, medical technology, and pharmacy and health tourism.

Brand-new developments in legislation in Hungary: The general legal framework governing M&A activity was set out in the Companies Act and in the Civil Code. As a brand-new development, these two main sources of law are merged into the new Hungarian Civil Code, entering into effect as of 15 March 2014. The new company law regulations leave much more freedom for private parties to deviate from the default statutory provisions, in particular the shareholders will be less bound when determining the contents of their Articles of Association.

The two most important sources of law for Turkish investors are of course the Double Taxation Treaty dated 1993 and the Bilateral investment treaty dated 1992.

Legal Aspects of M&A in Turkey

M&A terms are mainly regulated in Turkish Commercial Code. The main principles of M&A transactions are the “principle of universal succession” and “principle of continuation of partnership” in the new company.  There are some restrictions by law for M&A transactions in several sectors such as electricity, banking and finance and insurance business; that may require approvals from relevant state authorities. In addition, several M&A transactions can be subject to Turkish Competition Authority’s approval in cases where the volume exceed the thresholds determined and changing from time to time by the Communique of  Turkish Competition Authority.

Bud-legal Buzády & Udvari Attorneys at law                     Herdem Attorneys at Law

Budaörs – Hungary                                                        Istanbul – Turkey


Herdem Law Firm, Istanbul Turkey

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