Turkey: Squeeze-Outs Under New Capital Markets Regime

Squeeze-outs in public companies are regulated by the Communiqué on Squeeze-out and Sell out Rights1 (the "Communiqué") issued by the Capital Markets Board of Turkey (the "CMB") in in accordance with the Capital Markets Law No. 63622 (the "CML"). The Communiqué regulates the squeeze out of minority shareholders by the majority shareholder, as well as the minority shareholders' exit right by selling their shares to the majority shareholder.

The majority shareholder's squeeze out right was first introduced into Turkish law by the Turkish Commercial Code No. 6102 (the "TCC"). Pursuant to the TCC, if minority shareholders act (i) recklessly, (ii) in bad faith, (iii) in a manner so as to obstruct the company's operations, or (iv) create perceptible disruption in the company, the shareholder(s) holding, directly or indirectly, at least 90% of the share capital and voting rights of the company can squeeze-out the minority shareholders.

Although the TCC grants a squeeze-out right to the majority/controlling shareholder, the CML provides for a squeeze-out right for the majority shareholder based on different principles than those determined under the TCC. The CML prevails over the TCC's system and prevents the application of the TCC's squeeze-out rules for public companies. Accordingly, squeeze-out in public companies is only subject to the Communiqué, which will become effective on 1 July 2014.

I. Triggering Event

According to the Communiqué, if the total voting percentage of a shareholder or group of shareholders acting jointly reaches or exceeds 95% or more in a public company (the "Squeeze-out Threshold") through either a tender offer or by any other means (the "Controlling Shareholder"), the Controlling Shareholder is entitled to exercise the squeeze-out right and force the minority shareholders to exit the company. The Controlling Shareholder can reach the Squeeze-out Threshold by way of different methods including tender offers, a merger, capital increase or otherwise.

The Squeeze-out Threshold is determined based on the percentage of voting rights held by the Controlling Shareholder, which is calculated by taking into account (i) voting privileges (if any) and (ii) the total number of shares held, directly or indirectly, by the shareholders or persons acting jointly.

Once the Controlling Shareholders' total voting percentage reaches or exceeds the Squeeze-out Threshold, the minority shareholders also have the right to sell their shares to the Controlling Shareholders and exit the company by applying to the company within three months following the transaction. Even if the voting rights held by Controlling Shareholder falls below the Squeeze-out Threshold within such period, the minority shareholders' sell-out right remains effective until the end of the three-month period.

The Communiqué stipulates that the squeeze-out right is not automatically triggered for the existing Controlling Shareholders as from the Communiqué's effective date (i.e., 1 July 2014). Therefore, the shareholders who are considered as "Controlling Shareholder" pursuant to the Communiqué on 1 July 2014 must purchase additional shares in order to exercise the squeeze-out right. Finally, the Communiqué requires that the squeeze-out right cannot be exercised within two years following the date on which public company's shares have started to be traded on the stock exchange.

II. Process

The Controlling Shareholder must apply to the company within three months of reaching or exceeding the Squeeze-out Threshold, with the documents listed in the Communiqué. If the Controlling Shareholder fails to apply to the company within such period, the Controlling Shareholder's squeeze-out right is terminated.

Following the Controlling Shareholder's application, the company's board of directors must check to ensure whether or not the Controlling Shareholder has reached or exceeded the Squeeze-out Threshold and evaluate the purchase price. Thereafter, the company must adopt a board resolution for the cancellation of the minority shareholders' shares and to issue new shares in lieu of the cancelled shares. In addition, the company must submit an application to the CMB to obtain its approval for the issuance certificate relating to the new shares. Upon the CMB's approval for the issuance certificate relating to the new shares, the Controlling Shareholders must pay the squeeze-out price to the company's bank account. Upon the payment of the squeeze-out price, the company must increase its capital and allocate the newly issued shares to the Controlling Shareholders.

For listed companies, upon the finalization of the squeeze-out process, Borsa Istanbul must resolve for the delisting of the public company. In addition, both listed and non-listed companies will be deregistered by the CMB from the scope of the CML.

III. Squeeze-out Price

The calculation method of the squeeze-out price differs between listed and non-listed companies. In any case, the squeeze-out price must be paid in full, in cash and in Turkish Lira.

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 prior to the disclosure of reaching or exceeding the squeeze-out threshold by the Controlling Shareholder. Such calculation also applies for unquoted shares of the listed company. For non-listed companies, a valuation report must be prepared for the determination/calculation of a "fair" squeeze-out price.

The Communiqué will enter into force on 1 July 2014. Although the Communiqué provides detailed provisions on squeeze-out, we believe that the CMB's decisions will shed light on the process since the implementation of this new tool would certainly create complexity for the Turkish market.


1 Published in the Official Gazette dated 2 January 2014 and numbered 28870.

2 Published in the Official Gazette dated 30 December 2012 and numbered 28513.

© Kolcuoğlu Demirkan Attorneys at Law, 2014

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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