ABSTRACT
In this article, the legislation obstacles encountered in cross-border merger and acquisition (M&A) transactions will be outlined under various headings and how these obstacles can be overcome by companies and regulatory authorities will be discussed.
I. INTRODUCTION
In the 21st century, where the impact of globalization is increasingly felt and communication between countries takes only seconds, companies are developing growth strategies not only in local markets but also in the international arena. Cross-border merger and acquisition transactions play a critical role in achieving these objectives. These transactions provide companies with substantial opportunities to access new markets in different jurisdictions, benefit from the cost efficiencies offered by economies of scale, and access innovative technologies faster and more easily. However, executing these transactions can pose significant legal and operational challenges due to the differences, multiplicity and complexity of legal and regulatory frameworks across jurisdictions.
II. LEGAL FRAMEWORK OF CROSSBORDER MERGERS AND ACQUISITIONS
Cross-border mergers and acquisitions refer to the merger of companies operating in different countries or the acquisition of one company by another. These transactions are carried out within the framework of national regulations, international agreements and legal structures of various countries.
A. National Regulations and International Agreements
Each country has developed legal regulations governing mergers and acquisitions in accordance with its own competition policies and economic conditions. For instance, in Türkiye, the Law on the Protection of Competition numbered 4054 and related communiques control mergers and acquisitions. Within this framework, transactions exceeding certain thresholds require the approval of the Competition Board.
At the international level, various cooperation and agreements exist to regulate crossborder merger and acquisition transactions. In particular, aligned legal arrangements are implemented among the European Union (“EU”) member states to facilitate the free merger and acquisition of companies. In this context, the alignment efforts of the EU in corporate law are of great importance.
B. Comparing Approaches in Different Countries
Each country adopts regulations in line with its own requirements, economic structure and legal customs. For example, the United States, with its antitrust laws, has made it a primary objective to protect competition in mergers and acquisitions.
On the other hand, the EU has adopted a more integrated approach and aims to encourage crossborder mergers through its alignment efforts in the field of corporate law.
Within the framework of the negotiation process with the EU, Türkiye is developing its own merger and acquisition legislation in order to align with the EU acquis. In this context, the aim of the Turkish legislation is to take into account the country’s own needs and to adopt a balanced approach to merger and acquisition transactions in line with the EU standards.
C. Regulatory Framework of the EU and US Economies
In the EU, mergers and acquisitions are regulated under the EU Competition Law. The EU facilitates cross-border mergers between member states by aligning corporate law.
Without a common legal framework for company law in all EU Member States, companies or firms subject to Member State law may not be able to effectively exercise the freedom of establishment and freedom to provide services conferred by the Treaty on the Functioning of the European Union (“TFEU”)1. This is where the necessity for alignment of national laws arises2. Alignment is, in essence, the replacement of more or less divergent rules of Member State law on a given subject matter by a rule of the EU law applicable throughout the Union, thereby ensuring a level playing field, at least in principle, for entities operating in that field across the Union3.
Alignment may take the form of full alignment, leaving no discretionary authority to the Member States concerning the regulated area, or it take the form of minimum alignment, without eliminating the discretionary authority of the Member States in the area in question, but only limiting it, by setting minimum standards4. The legislative measures adopted within the framework of alignment efforts in this field are based on Articles 50, 114, 115 and 352 TFEU.
In the US, competition regulations, known as antitrust laws, oversee mergers and acquisitions. These laws prohibit mergers that may impede competition or create monopolies6. The Sherman Act is the basic law that guides antitrust laws. The first article of this law prohibits cartels and the second article prohibits monopolies. The prohibition of cartels brought mergers to the agenda and this led to an increase in mergers.
III. CHALLENGES RELATED TO THE LEGISLATION
Cross-border mergers and acquisitions are an important strategic tool for companies to achieve global growth and expand into new markets. However, the complexity in the legal regulations of different countries complicates these processes and brings along various problems.
A. Incompatibility of Different Legal Systems
One of the most significant challenges in crossborder mergers and acquisitions is the incompatibility of legal systems in the jurisdictions where the parties operate. The fact that each jurisdiction has distinct legislation and regulatory authorities increases the complexity of the processes.
Legal Disputes: A procedure that is legal in one jurisdiction may be subject to different restrictions in another. For instance, discrepancies in taxation, labor rights or competition policies may make it difficult to the seamless completion mergers.
Practical Results: Companies require costly legal counsel to comply with the regulations in each jurisdiction. Moreover, delays in compliance with legislation process may adversely affect the pace of mergers.
B. Competition and Diversity in Audit Processes
Crossborder mergers and acquisitions are significant transactions undertaken by companies to secure a stronger position in global markets. However, these transactions can be complicated by one of the major challenges faced by multinational companies, namely the diversity of competition authorities’ oversight processes in different jurisdictions. Each jurisdiction assesses merger and acquisition transactions in accordance with its own legal framework and criteria to safe guard its market and maintain competition. This makes it difficult to conduct merger and acquisition transactions effectively at the international level.
For largescale mergers, i.e. those exceeding the thresholds set out in the EC Merger Regulation (139/2004), only the European Commission is authorized and the merger review is conducted centrally. Such transactions are supervised by a single authority to safeguard competition, as they may have substantial economic effects in the EU internal market.
On the other hand, smaller mergers or mergers that have an impact on the market of a particular Member State are considered by the national competition authorities of that Member State. For instance, in the case of a merger between a retail chain based in Germany and a smaller retail company based in France, if the activities of these two companies are largely limited to Germany and France and do not exceed the EU-scale thresholds in the European Merger Regulation, the German and French competition authorities will be competent to assess the competition impact of the merger.
C. Tax Issues
1. Double Taxation Risk
During merger and acquisition transactions, companies may have to pay taxes in multiple jurisdictions on the same income, potentially resulting in double taxation issues. Although certain jurisdictions have entered into double taxation treaties to address this issue, not all jurisdictions are parties to such treaties, which can complicate transactions.
2. Tax Compliance Costs
The diversity of tax rates, accounting principles and reporting obligations in different countries can increase the complexity of merger and acquisition transactions. Ensuring compliance with each jurisdiction’s legal framework may impose a substantial burden on companies in terms of both time and resources. Variations in tax rates increase the cost of transactions, while mismatches between accounting standards can increase the complexity of financial reporting. In addition to increasing the overall cost of transactions, these factors may cause timeline delays and adversely impact operational efficiency.
D. Labor Law and Human Rsources Regulations
In addition to financial and strategic challenges, cross-border merger and acquisition transactions face significant labor law and human resources complexities. These processes raise complex legal issues such as the protection of employee rights, the transfer of employment contracts, workforce restructurİng and the validity of collective bargaining agreements. The most critical challenges in these phases involve ensuring the legal entitlements of employees, addressing potential redundancies or reassignments, and overseeing workforce adaptation to organizational changes.
Moreover, alignment of social security systems, pension entitlements and immigration regulations in across jurisdictions can further complicate the process. Legal obligations, negotiations with trade unions and effective human capital management are critical factors for successful integration. The sustainable success of a company is closely linked not only to legal compliance but also to employee satisfaction and organizational efficiency. Therefore, both aspects need to be managed in a balanced manner throughout the mergers and acquisitions process.
E. Intellectual Property Rights and Technology Transfer
Cross-border merger and acquisition transactions present significant legal challenges concerning intellectual property rights and technology transfer regulations. Variations in intellectual property laws across jurisdic tions, and sometimes even in different jurisdictions within a country, can create legal obstacles, particularly when transferring patents, trade secrets and licensing agreements. These discrepancies can complicate the process of acquiring an acquiring comPany’s existing intellectual property rights and technologies, thereby giving rise to potential risks.
In addition, technology transfer may be further complicated by jurisdictionSpecific regulations and national laws governing the transfer of strategically important technologies abroad. Therefore, the protection of trade secrets and the strict adherence to confidentiality obligations require great care and attention to ensure that the process is conducted in a legally sound and secure manner.
F. Cultural and Ethical Challenges
Cross-border merger and acquisition transactions encounter significant obstacles in terms of cultural and ethical challenges. Variations in corporate practices in different countries operate, conduct business and cultural values can further complicate the merger process. In particular, incompatibilities between different business cultures, communication styles and management approaches may result in conflicts and demotivation among employees.
Moreover, differences in ethical norms, environmental sensitivity, working conditions and social responsibility may prevent merged companies from operating in alignment. These ethical and cultural differences can also affect companies’ relationships with local communities, and an insensitive approach to the values of local people can damage a company’s reputation. In this context, the cultural integration process requires effective communication strategies, leadership alignment and proper management of employee expectations. Successfully overcoming cultural and ethical challenges can ensure a more harmonious merger and ensure its sustainability.
IV. SOLUTION PROPOSALS AND STRATEGIES
A. Utilizing Technological Solutions
Digitalization and artificial intelligenceenabled legal analysis tools can facilitate rapid and efficient analysis of regulatory information across different jurisdictions. Such technologies can ease legal compliance procedures, saving time and reducing costs. Thus, companies can execute merger and acquisition transactions more efficiently.
B. Alignment of International Regulations
Alignment of international regulations is of great importance in resolving the legal and regulatory challenges faced in crossborder mergers and acquisitions transactions. In this context, it is necessary to develop common legal standards across countries, update double taxation agreements, ensure global alignment in data protection rules and establish stronger cooperation mechanisms between competition authorities.
V. CONCLUSION
Crossborder merger and acquisition transactions are an important part of companies’ strategies to grow and gain competitive advantage in international markets. However, these processes face encounter numerous, such as incompatibilities in the legal and regulatory frameworks of different jurisdictions, diversity among competition authorities, and cultural differences. To address these challenges, it is essential to utilize technological solutions, align international regulations, and develop an effective communication strategy. In this way, companies can both ensure legal compliance and conduct merger and acquisition processes more efficiently. For longterm success, a balanced management of all these elements, along with the cultural integration of the companies, should also be taken into account.
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FOOTNOTE
1 In the footnote of the First Company Law Directive 68/151, it is emphasized that the removal of obstacles to the right of establishment is a matter of urgency, in particular for joint stock companies, limited liability companies and limited liability companies divided into shares, as the activities of these companies often crossnational borders.
2 Nicola De Luca, European Company Law: Text, Cases and Materials. (Cambridge: Cambridge University Press, 2017), p. 16-19.
3 İlke Göçmen, European Union Substantive Law: Domestic Market, 2021, p. 131.
4 Josephine Steiner/ Lorna Woods, EU Law. 10th Edition (Oxford: Oxford University Press 2009), p. 363- 373.
5 Murat Sümer, Harmonization Studies on Company Law in the European Union and European Type Company Forms, Ankara Journal of European Studies, Cilt: 18, No: 2 (Yıl: 2019), p. 561.
6 Sevilay Sarıca, US, EU and Turkey’s Approach to Firm Mergers, Journal of Economic and Social Research, Spring 2008, Vol:4, Year:4, No:1, p. 56.
