Turkey: Mandatory Tender Offer In Accordance With The New Capital Market Legislation In Turkey

Last Updated: 22 October 2014
Article by Sena Apak and Serra Haviyo

The shareholders of public companies may either voluntarily offer to purchase the shares of the minority shareholders or under certain circumstances, they are obliged to launch mandatory tender offers (the "MTO") to purchase the same. Since acquisition of the shares of the public companies may trigger the MTO requirement, the MTO requirement should also be taken into account before investing in a public company.

The procedures and principles regarding the execution of the MTO are set out under the Communiqué No. II-26.1 governing tender offers (the "Communiqué"), which was published in the Official Gazette dated 23 January 2014 and numbered 28891, through which the tender offer rules in Turkey have been amended and such new rules have abolished the previous Communiqué No. IV-44.

Exceptions of Application

Unless otherwise specified in the related regulations; and independently from the change of control in the management, the provisions of the Communiqué would not apply to the MTOs arising from:

a) significant transactions; (being a party to merger, demerger transactions, taking the resolution to change the company type or to terminate, transferring the whole or an important part of its assets or renting or establishing a real right on them, changing its field of activity totally or to a significant extent, creating privileges or changing the content or subject of existing privileges, being delisted etc.)

b) approval of the amendments of the articles of association of the investment companies which would lead to a change or loss in the investment company qualifications of such companies;

c) ex officio rejection of the companies from the public company status by the Board.

General Principles

Persons, who acquire shares or voting rights of a public company through a partial voluntary tender offer, block or individual purchases or any other method, which grant them the control over the management directly or indirectly, solely or together with the parties in concert with the same ; are obliged to make an MTO for purchasing the shares of the minority shareholders. Besides, any change in the control of management resulting from the execution of special written agreements by and between the existing shareholders, despite the absence of any change in the ownership of the shares, would also trigger the MTO requirement.

As to the definition of the control of management; holding directly or indirectly, solely or together with parties in concert with the same, more than fifty percent of the voting rights of the public company, or regardless of such threshold, holding privileged shares granting the right to elect the absolute majority of the members of board of directors or the right to nominate the same number of members in the general assembly; would be construed as having the control of management.

It is compulsory to make an application to the Board within six business days as of the acquisition of the shares granting control of management with an information form and other required documentation. The MTO process has to be initiated within two months following the occurrence of the event triggering the MTO and within six business days following the approval of the information form by the Board. It is possible for the Board to grant additional time to launch the MTO, provided that an interest in the amount of annual rate of TRLIBOR plus 50% would be added to the MTO price for each day exceeding two months, where the price is denominated in Turkish Liras. Where the price is determined in EUR or USD, the annual rate of EURIBOR or LIBOR plus 50% would be applied respectively. In the event of non-consummation of the actual MTO transaction until the end of the additional time granted by the Board, an administrative fine up to the amount of the total value of the shares subject to the MTO would be imposed on the real or legal persons who are failed to launch such MTO.

The period of the MTO would be at least 10, at most 20 business days. Failure to launch the MTO in a timely manner would result with the automatic freezing of the voting rights of the respective shareholder and the parties in concert with the same, without the need for the Board to take any further action and such shares would be disregarded in the general assembly quorum.

MTO Price

In principle, the payments should be made in Turkish Liras in full and cash. However, the MTO price may be paid partially or wholly via stock exchange securities on condition that the written approval of the shareholders must be obtained. The Board may request a guarantee for payment of the MTO price by a Turkish bank or a third party legal entity.

There are different calculation methods for the MTO price depending on whether the public company is listed or not, whether there is an indirect change of control in the public company or not, and whether the public company has more than one class of shares or not. If the public company is listed, the offeror must sign a brokerage agreement with an investment company and the MTO price cannot be less than the arithmetic average of the daily weighted average stock exchange prices originated within the six-month-period prior to the public disclosure date of the share purchase agreement and, the highest amount paid by the offeror or parties in concert for the same group shares of the public company within six months preceding the MTO. Secondary obligations or premiums and similar considerations are also taken into account for the determination of the MTO price. The Board may ask a valuation report as of the share transfer date in case the MTO price cannot be determined thereunder.

The MTO price would be subject to redetermination in the event that the shares of the public company are purchased by the offeror or the parties in concert at a price higher than the MTO price between the date of the public disclosure of the share purchase agreement and the expiry date of the MTO. Any redetermined price cannot be lower than the highest price paid for the shares so acquired.

Exemption from the MTO Requirement

1.4.1 MTO requirement would not arise under the below-mentioned circumstances:

a) Acquisition of the control of management subsequent to a voluntary tender offer made to all shareholders for all of the shares under their possession;

b) Acquisition of the control of management through an approval of the special written agreements executed between the existing shareholders by the general assembly and granting of the exit right to participating shareholders whose opposition statements have been annotated in the meeting minutes;

c) Without losing the management control, repossession of more than 50% of the voting rights of the company by the same shareholder holding the control of management after his shareholding dropped below such ratio;

d) Acquisition of the control of management through share transfers within the same group holding controlling interest in the public company.

1.4.2 The Board may also grant an exemption from the MTO requirement under the below-mentioned circumstances upon request:

a) Acquisition of the shares further to an obligatory shareholding structure change in order to strengthen the financial position of the company;

b) Disposal of the part of the shares which necessitates the MTO requirement;

c) Change of management control in the parent company of the public company, without aiming to gain control of the public company;

d) Sale of the public shares of the public company under privatisation;

e) Change in management control due to a merger transaction provided that the shares of the shareholders who voted against the merger in the related general assembly are acquired.

For the exemption requests, it is necessary to apply to the Board within six business days following the MTO triggering event. If an exemption request is rejected, the MTO should be initiated within one month following the decision of the Board.

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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