Disputes That May Arise In Mergers And Acquisitions Of Companies – Corporate/Commercial Law

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There are no obligations of conduct agreed by the parties in the
merger and acquisition process. Although there is no such
obligation, according to good faith, the parties have obligations
of loyalty and protection to each other. In this context, they have
obligations such as providing accurate information and
clarification, taking care to protect each other’s asset
values, not promising an impossible act, not ending negotiations
for no reason and untimely, not prolonging the negotiation process
and avoiding actions that will lead to an increase in the price. In
case of violation of these obligations, it is extremely normal for
a dispute to arise between the parties, which is already a common
occurrence during the merger and acquisition process because of
such reasons.

The merger and acquisition process is generally divided into
these three periods;

  1. Pre-Signature Period
  2. Post-Signature/Pre-Closure Period
  3. The Post-Closure Period

As will be seen in detail, it is inevitable that disputes may
occur in merger and acquisition agreements due to various reasons.
In this study, we will examine the disputes that occurred during
the merger and acquisition process by considering them separately
in these three periods that we have mentioned.


Before Due Diligence is performed, the parties must submit a
letter of intent, a document indicating the final
transaction they want to achieve with the merger and acquisition.
Letters of intent may be issued in a way that they are not legally
binding on the parties, or they may also be issued with binding
provisions such as exclusivity and negotiation costs. However, with
the letter of intent, the parties may also grant each other the
right of priority in establishing the negotiated agreement, and if
such a right is granted, the behavior of one of the parties in
violation of it may cause a breach of debt.

When exclusivity and confidentiality obligations are violated,
proving the violation and determining the damages suffered may
cause disputes between the parties that are not easy to settle. An
allegation that the buyer or seller has informed third parties
about the negotiation process may also lead to a dispute based on a
violation of the confidentiality obligation. However, whether the
letter of intent has a binding effect or not and a violation of
confidentiality and exclusivity obligations may also create
disputes between the parties. Other than the letter of intent,
obligations of conduct such as confidentiality, exclusivity, can
also be set with preliminary agreements.

The letter of intent does not impose an obligation on the
parties to conclude the contract. However, the letter of intent
should be written carefully, otherwise it can lead to disputes
later on. Likewise, negotiations and meetings of the parties on
mergers and acquisitions of the company may not always result in a
positive result. For example, if the pre-contract negotiation
fails, one of the parties may claim compensation for damages
suffered by the other party with an allegation of violation of the
letter of intent or preliminary preparation agreements.

Disputes that may arise in the event of a violation of the
letter of intent and the resolution of these disputes vary
depending on whether these provisions are binding or not. However,
at the point where the meeting and negotiations have started and
the due diligence has taken place and it is claimed that the
liabilities arising from good faith have been violated -whether the
contract has been concluded or not- “culpa in
obligation comes up.

Again, if the other party suffers damage due to the seller’s
defective behavior during the company’s merger and acquisition
negotiations, the seller’s culpa in contrahendo obligation
applies to this as well. On the other hand, the buyer may also
cause damage to the other party due to its defective behavior in
the event of these meetings. In this case, the buyer’s
obligation for culpa in contrahendo is also raised, and therefore
the buyer will have to compensate the other party’s damage.

A. Culpa In Contrahendo

Culpa in contrahendo is based on the contractual trust
relationship established between the parties in accordance with
good faith. It is the responsibility one of the parties or its
auxiliaries has over the other party or persons under their
protection at the stage before the establishment of the contract.
In short, it is the obligation arising from contract negotiations.
Before the establishment of the contract, the parties conduct
negotiations with each other regarding the content of the contract,
its terms, the rights and obligations covered by it. With these
negotiations, a contractual trust relationship is established
between the parties. During these negotiations, a duty of care
arises between the parties, according to which the parties must
disclose the facts, not provide false information, protect the
other party’s interests, property and personal assets. If one
of the parties acts contrary to these obligations and therefore
causes damage to the other party, they are obliged to compensate
for this damage. Therefore, it is clear that the parties have to
act in accordance with their due diligence obligations during the
due diligence review.

Violation of pre-contractual obligations may lead to
cancellation of the merger and acquisition agreement, as well as
create situations that may lead to liability in terms of acting
without authority, unjustified enrichment and tort provisions in
the process.


The most common disputes at this stage of merger and acquisition
transactions occur when conditions called prerequisites -made in
order for the merger and acquisition process to be effective and
obtain results- are not carried out.

It is likely that disputes will arise between the parties in the
fulfillment process of the prerequisites. Matters which are most
often the subject of disputes are; whether prerequisites are met or
not, and if they are, whether they are still satisfactory for the
parties even in closure, whether the parties are doing their part
to carry out the prerequisites, sharing the responsibility when
getting the necessary permits or approvals from the supervisory
authorities, and the consequences of not getting them, the buyer
not being satisfied with post-signature inspection and the due
diligence process.

Sometimes, during the period between the signing of the contract
and the closure, changes may occur that will negatively affect the
acquisition. The parties that do not want to be harmed by these
changes put substantial alteration clause in merger and acquisition
agreements. Through this clause, in case of a change in financial
circumstances, value of the assets, responsibilities or operational
results revealed by the due diligence process performed during
contract negotiations, the right to terminate the contract by the
vote of the majority is given. Disputes may arise between the
parties because of this clause as well.


After the closure, disputes arising from price determination and
implementation of representations&warranties between the
parties are mostly encountered. Therefore, before the parties
prepare their representations&warranties, they must determine
the basic rules of the contract.

The alleged violation of the elements agreed between the parties
-such as non-competition, confidentiality, enticing the employees,
not offering them a job, and the obligations set out in the
shareholder agreement- is also a reason of dispute that may occur
in the closure period.

It is necessary to list and explain the disputes that may occur
in the post-closing period down below.

A. Lack Of Necessary Qualifications In The Acquisition Of The
Company’s Share And Warranter

In mergers and acquisitions of a company, a share purchase and
sale agreement is signed between the buyer and the seller. This
agreement is an agreement about the acquisition of the target
company In accordance with this agreement, an enterprise is
acquired by transferring shares or assets. In the base of this
agreement -the purpose of which is acquisition- lies assets or
shares. In this case, the emergence of an uncalled defect in terms
of assets poses a deficiency of due qualification. Regarding such
cases, if no regulations have been made by the parties, warranter
provisions can be relied on.

The seller’s warranter responsibility in the sale agreements
is issued in Turkish Code of Obligations from article 219 to 231.
Accordingly, the seller also guarantees that the goods will be
delivered to the buyer without defect as a side act of the
obligation to transfer the ownership of the goods in question to
the buyer.

In order for the seller to be able to address a warranter, the
conditions down below are necessary;

  • That the defect in the sold product exists at the time the
    buyer takes over the benefits and losses by contract.
  • That the defect in what was sold was significant
  • That the defect in what was sold was a hidden defect
  • That the liability was not lifted by the contract
  • That the product has been delivered to the buyer.

In addition, the seller may also be held responsible if the
qualities that the seller specifically stated are not on the sold
product. But the question of whether the warranter provisions can
be relied on or not is controversial in the doctrine. In the
doctrine, there are writers and thinkers who argue that because of
deficiencies in due qualifications, the warranter provisions can be
relied on and some who argue that they cannot.

The scope and consequences of the warranter responsibility must
be regulated in detail in the contract in order to prevent disputes
about whether the warranter provisions will be valid when
encountered with lack of necessary qualifications in company
mergers and acquisitions.

In cases where the seller has warranter responsibility in the
merger and acquisition agreement, the matter of which optional
rights the buyer will use is also a separate issue. A number of
optional rights have been granted in accordance with Article 277 of
Turkish Code of Obligations after the seller’s warranter
against the buyer have taken place These optional rights can be
listed as;

  • Rescission of the contract
  • Asking for a discount on the sale price
  • Requesting a free repair of what was sold
  • Replacing what was sold with a similar defect-free one.

It is not necessary to file a lawsuit in order to exercise these
optional rights. However, in practice, the exercise of optional
rights without a lawsuit does not bear a meaning.

B. The Parties Removing The Warranter Responsibility From The
Merger And Acquisition Agreement (TCO. Art. 221 Irresponsibility
Agreement) And Disputes Arising From The Removal

The parties may agree that the seller has no warranter
responsibility when establishing the contract after due diligence
review. In art.221 of the Turkish Code of Obligations states that
if the seller is seriously at fault, the irresponsibility agreement
will be invalid, if not, the parties may make a valid
irresponsibility agreement. Accordingly, if a serious defect by the
seller is on the table, the irresponsibility agreement concluded by
the parties will not be valid. In the event that the
irresponsibility agreement is not valid, the right to rescind the
contract and to reduce the price may be exercised.

Matters such as deception and wrongdoings may have an effect on
the validity of provisions that remove or limit the parties’
responsibilities. But it is also not very easy to prove the
existence of these situations.

C. Disputes Arising From Third Parties’ Requests From The
Target Company In Share Transfer Operations

In almost every merger and acquisition transaction that takes
place through share transfer, there is a possibility that third
parties will make justified demands from the target company that
will result in a violation of the seller’s statements and
commitments. In the event of such a situation, matters may arise
that will lead to a dispute between the parties of the merger and
acquisition process.

The appropriate course of action when such a situation occurs is
usually agreed on by the parties of the merger and acquisition
agreements. Accordingly, provisions such as; the buyer informing
the seller of a third-party’s requests and the buyer allowing
the seller to manage the process, the buyer and seller cooperating
over a third-party’s requests, and not fulfilling the
third-party’s request without the seller’s permission, the
seller informing the buyer of a third-party’s requests, may be

In some cases, due to business life, the target company may want
to resolve this issue with its client without resorting to any
judicial means and may not even notify the buyer of the existence
of such a request. In such cases, the issue of whether the seller
can intervene in the relationship between the target company and
its client will arise. In order to avoid such situations, matters
such as determining whether the result of a trial (if any) between
the target company and its client will be binding for the buyer,
whether the seller will be obliged to assist the buyer or the
target company in the trial process, should be decided. This way, a
dispute between the parties can be prevented.

D. Dispute Over The Price

Disputes arising from the price are one of the most common
merger and acquisition disputes. In order not to encounter this
problem, first of all, it is necessary to determine which criteria
will be used when estimating the price. Various methods are used
when conducting these estimations. Whichever of the methods is
chosen, the final or temporary price can be decided in the contract
based on the chosen one. The temporary price may increase or
decrease according to the criteria agreed by the parties.

It is natural in merger and acquisition transactions that the
seller would want to avoid selling the subject of the transaction
for a price below the value, and the buyer would want to avoid
paying a price higher than it is worth. In merger and acquisition
transactions, the parties may provide an agreement on issues that
will affect the determination of the price. In this case, it is
important to find alternatives to determine the price to be paid
rather than risking the execution of the merger and acquisition
transaction in terms of ensuring the interest that the parties
expect from the transaction.


Mergers and acquisitions of companies have an important place in
terms of commercial life. The process of mergers and acquisitions
the company is a difficult process, matters such as; parties not
complying with the provisions of the contract they concluded,
acting against their obligations for each other, violation of
pre-emption or pre-emptive right regulated by shareholders’
agreement between existing shareholders will affect the completion
of the process. Again, due to these and the various disputes that
we mentioned above, the contract may be canceled.

Culpa in contrahendo responsibility comes up when one of the
parties display behaviors that undermine the trust relationship the
parties have developed during contract negotiations. In case of
culpa in contrahendo obligation, it is also possible to compensate
for the caused damages.

In company merger and acquisition agreements, the seller may
also have warranter responsibility. If the terms of the
seller’s warranter responsibility have been fulfilled, there
will be some optional rights provided that the buyer fulfills the
burdens imposed on them. If the nature of the company’s merger
and acquisition agreement is also taken into account, using the
optional right of price reduction will be in accordance with the
interests of the party.

In order not to encounter the disputes mentioned in this process
and not to use the optional rights or to cancel the contract as a
result, it is extremely important for the parties to act carefully
and diligently.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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