Upon enactment of the new Capital Markets Law (CML), the Capital Markets Board (CMB) has issued new communiqués providing an insight into the implementation of the new capital market, including exit and delisting principles in 2014.
A change: Squeeze-out right
The squeeze-out right of a majority shareholder was initially introduced by the Turkish Commercial Code (TCC), enacted in 2012. But Article 29 of the CML explicitly omits the application of the TCC to public companies. The CMB issued the squeeze-out communiqué (Communiqué) on February 2014, effective as of 1 July 2014, regulating principles and procedures for exercising squeeze-out right.
Triggering event and process
Either as a result of a mandatory tender offer or through other means (eg, acting in concert, voluntary tender offer), the shareholding percentage exceeds 95%), the persons holding such shares have the right to squeeze-out the minority shareholders.
Under the Communiqué, to exercise the squeeze-out right, the majority shareholder should apply to the company within three months upon reaching the 95% voting right threshold. The squeeze-out right lapses if not exercised within three months upon reaching the 95% threshold.
Upon application, the board of directors (Board) of the public company should assess whether (i) the shareholding threshold is met and (ii) the purchase price has been calculated correctly. Upon such assessment, the Board should make a simultaneous application to the CMB and the Istanbul Stock Exchange (ISE). Upon approval of the CMB, the squeeze-out price must be paid to the company's account. Within six business days upon approval of the CMB, the squeeze out must be registered in the relevant trade registry. A successful squeeze-out process results in the delisting of the public company from the ISE and deregistration from the CMB.
Calculation of the squeeze-out price
The calculation of the squeeze-out price is regulated in the Material Transactions Communiqué. The calculation method differs between listed and non-listed companies. For listed companies, the squeeze-out price must be equal to the arithmetic average of the weighted average trading prices of the company's shares within the 30-day period before the public disclosure of reaching/exceeding the 95% threshold by the controlling shareholder. In practice, there have been discussions around the pricing methodology and its being unfair and causing information irregularity between the controlling shareholder and the minority. The CMB therefore announced that the below amendments are being considered for the pricing methodology for squeeze-out and delisting:
"The squeeze out and delisting price will be the highest of the;
arithmetic average of the weighted average of the company's shares within a 30-day period, a 180-day period and a one-year period before the public disclosure of reaching/exceeding the 95% threshold by the controlling shareholder; and
the company's share valuation determined in an appraisal report to be prepared or in any valuation made on the shares of the company (through acquisition, or merger etc.) during the last year."
The pricing methodology will likely change soon.
Quote: Public companies intending to get off the CMB's radar and capital markets legislation have started to pursue voluntary tender offers followed by squeeze-out and delisting. Although the communiqué provides detailed provisions on squeeze-out rights, the CMB's decisions on the calculation of the squeeze-out price will shed light on the process.
This article was originally published in the schoenherr roadmap`15 - if you would like to receive a complimentary copy of this publication, please visit: pr.schoenherr.eu/roadmap.
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