Turkey: New Era for Turkish Tender Offers

Last Updated: 26 April 2010
Article by Guner Law Office

Part 1 - Introduction and Key Differences Between Old Legislation and New Legislation

Buying public company shares through voluntary and compulsory tender offers has experienced fast and significant development in global capital markets.

The Capital Markets Board of Turkey (CMB) introduced tender offers to the Turkish capital markets in 1994 with Communiqué Serial: IV No: 8 (the Old Legislation). The CMB published a new Communiqué Serial: IV No: 44 (the New Legislation) on 2 September 2009 which supersedes the Old Legislation1. The broad aim of this New Legislation was to bring Turkish legislation in line with EU standards and make the Turkish Capital Markets more attractive to investors.

We compare the Old Legislation to the New Legislation in Part 2 below and comment on the differences.

Some of the key differences are as follows:

  1. Precise definition of "management control". In the New Legislation the key trigger for a compulsory tender offer is a change in "management control". The New Legislation defines "management control" in detail, which will make it easier for a potential buyer of shares in a public company to understand whether a compulsory tender offer is necessary.
  2. Abolition of 25 per cent threshold. Under the Old Legislation a compulsory tender offer must be made if a person held 25 per cent or more of the share capital and voting rights of a Turkish public company. The New Legislation in its definition of "management control" changes this threshold to 50 per cent, which will help to promote strategic partnerships in Turkish public companies.
  3. It is clear what does not trigger a compulsory tender offer. The New Legislation sets out a clear set of circumstances where a compulsory tender does not need to be made (despite there being a change in management control). This again gives greater clarity for potential buyers.
  4. No "General Assembly" exemption to a compulsory tender offer. The New Legislation removes the controversial exemption from a compulsory tender offer in the Old Legislation if 2/3 of the shareholders of a company approve it in a General Assembly. This change protects minority investors.
  5. Clarification of compulsory tender offer timeline, price and disclosure principles. The New Legislation: clarifies the compulsory tender offer timeline; contains detailed rules about calculating compulsory tender offer price; and clarifies what public disclosures should be made in a compulsory tender offer. Again these amendments aim to create greater market certainty.
  6. Partial voluntary tender offers. Under the New Legislation partial voluntary tender offers are possible (for example a tender offer directed at a specific share group of the target public company). This allows potential investors greater flexibility.

Therefore the changes introduced by the New Legislation encourage potential investors to invest in Turkish public companies by introducing certainty and flexibility. The New Legislation also protects minority investors by abolishing the "General Assembly" exemption and setting out detailed disclosure rules.

Part 2 - Detailed Comparison Between Old Legislation and New Legislation and Comments

Matter

Old Legislation

New Legislation

Comments

1. What triggers a compulsory tender offer?

If any party or parties acting in concert, directly or indirectly, gain:

  • 25% or more of the capital and voting rights; or
  • shares granting the management control of a public company (regardless of the percentage of shares bought),

through voluntary bid, block sale, series of sales or by any other means, such party or parties must make an offer to the other shareholders to buy their shares.

Further, if any party or parties acting in concert own between 25% and 50% of the capital and voting rights of a public company and increase this percentage by 10% or more in any given 12-month period, such party or parties shall make an offer to the other shareholders to buy their shares.

If any party or parties acting in concert, directly or in directly, gain:

  • shares granting the management control of a public company,

through voluntary partial bid, block sale, series of sales or by any other means, such party or parties must make an offer to the other shareholders to buy their shares

The Old Legislation referred to management control but did not define it. This made it difficult for potential buyers to understand whether their acquisition would trigger a change in management control.

2. "Management control".

No precise definition.

"Management control" shall mean direct or indirect acquisition of 50% or more of the capital and voting rights of a public company by a party or parties acting in concert.

"Management control" will also be gained if a person gains privileged shares which grant the right to appoint a majority of the directors or a public company. This will apply regardless of the percentage of shares bought.

An indirect acquisition of management control will occur if there is any change of management control at controlling shareholder level (or further up the chain of control if relevant).

The more precise definition of "management control" aims to minimise market confusion.

The increase in the threshold from 25% to 50% may make it easier for Turkish public companies to enter strategic partnerships.

3. What does not trigger a compulsory offer?

The Old Legislation does not mention any circumstances which do not trigger a compulsory offer. The Old Legislation only describes conditions under which the CMB may grant an exemption from the compulsory tender offer.

The New Legislation sets out circumstances which will not trigger a compulsory offer (even if there is a change in management control):

  • If the change in management control is due to a voluntary tender offer or intra-group transfer.
  • If the change in management control results in management being equally shared with an existing controlling shareholder.
  • If percentage threshold has been triggered by a shareholder who already has management control (for example by holding privileged shares).
  • If a shareholder who has management control loses that management control and then regains it (and no other shareholders or third parties gain management control during this period).

The New Legislation provides clarity by setting out specific circumstances where a compulsory tender offer will not be triggered.

4. Exemption conditions.

Under the Old Legislation a person can apply to the CMB to be exempt from a compulsory offer if they meet the following conditions:

  • The acquisition of shares is necessary to strengthen the capital of the target public company. The CMB had the right to examine the relevant company or request an independent audit.
  • A general assembly meeting attended by shareholders representing 2/3 of the capital of the target public company approves the acquisition of shares.
  • There is no change in the management control of the target public company following the acquisition. In such cases, the CMB may examine this and revise the capital of the relevant company if necessary.
  • The acquisition is carried out due to compulsory legal requirements (e.g. inheritance) or the thresholds have been unwillingly exceeded and the acquirer undertakes with the CMB it will dispose of the excess as required by the CMB.
  • The shares were received due to a privatisation.

Under the New Legislation a person can apply to the CMB to be exempt from a compulsory offer if they meet the following conditions:

  • The acquisition of shares is necessary to strengthen the financial position of the target public company. To grant an exemption, the CMB may require funding to be made to the target company or request an independent audit.
  • The acquirer undertakes with the CMB that it will dispose of the portion of gained shares or voting rights that triggered the compulsory bid requirement as required by the CMB.
  • The change in the management control of the parent company of a public company is not aimed at gaining the management control of the public company. To assess this the CMB shall consider whether the parent company's shareholding in the public company exceeds 10% of its total assets in its latest balance sheet, whether the shareholding in the public company is insignificant for the general activities of the parent company and similar conditions.
  • The shares were acquired because of a privatisation.

The "general assembly approval" exemption (which was unclear and controversial) no longer applies to the New Legislation. The CMB commented that this was due to a significant number of requests from investors to remove the exemption.

5. Timeline.

The compulsory tender offer timeline under the Old Legislation is as follows:

  • Time of triggering event
    = T
  • Last day for CMB exemption application (if an application will be made)
    = T + 5 days
  • Last day for CMB compulsory offer application
    = T + 15 days
  • Last day for CMB to approve the compulsory offer documentation
    = Application date + 30 days
  • Last day for beginning of offer period = Not defined. Offer period
    = Min. 15 – Max. 30 days
  • Last day by which the CMB and ISE must be notified of the new shareholding and management as a result of the offer
    = End of offer period + 1 week

The compulsory tender offer timeline under the New Legislation is as follows.

  • Time of triggering event
    = T
  • Last day for exemption application to CMB (if an application will be made)
    = T + 6 business days
  • Last day for compulsory offer application to CMB
    = T + 6 business days
  • Last day for CMB to approve the compulsory offer documentation
    = Application date + 33 business days
  • Last day for beginning of offer period
    = Date of CMB approval + 6 business days
  • Offer period
    = Min. 10 – Max. 20 business days

The New Legislation also describes in detail the timeline which will apply if the CMB rejects a company's exemption application:

  • Rejection date of exemption application
    = R
  • Last day for CMB compulsory offer application
    = R + 6 business days
  • Last day for CMB to approve the compulsory offer documentation
    = R + 18 business days
  • Last day for beginning of offer period
    = Date of CMB approval + 6 business days
  • Offer period:
    Min. 10 – Max. 20 business days

The New Legislation clarifies the compulsory offer timeline (for example by referring to business days for the first time and by providing a specific timeline if the CMB rejects an compulsory tender offer exemption application

6. Offer price.

The Old Legislation only contains basic rules on compulsory tender offer price.

The New Legislation contains much more detailed rules on offer price, which we briefly summarise below.

The compulsory offer price cannot be less than the highest price paid for the shares of the same kind (including the shares gained to trigger the compulsory offer) within six months before T.

If the compulsory offer price cannot be determined by this method the CMB may ask certain institutions (such as investment banks) to prepare a valuation report to decide a price.

There are also separate price determination mechanisms if there is an indirect change in the management control of the target public company (i.e. a change in control at parent company level or higher) or if the relevant Turkish public company has different share groups.

The New Legislation also contains various rules on price equality in compulsory tender offers, and the interest/exchange rates that will apply to compulsory tender offer prices.

Investors are likely to welcome the clarification the New Legislation provides on compulsory tender offer price.

7. Public disclosure.

(a) Triggering events
The Old Legislation does not contain any specific rules on public disclosure events associated with tender offers. Offerors are mainly obliged to comply with other legislation of the CMB on the public disclosure of material events.

(b) Disclosure documents
The disclosure documents that need to be prepared and sent to relevant public bodies to make a compulsory tender offer are as follows:

  • Offerors have to prepare and send to the CMB for approval a compulsory information form and an offer text in a true, accurate, clear and sufficiently detailed manner highlighting all the material facts on the transaction.
  • Once approved by the CMB, the offerors must publish the compulsory information form in at least two national newspapers, and in addition send the same to the shareholders holding the target shares (by publication in the daily bulletin of the ISE).
  • Offerors must also inform the CMB and ISE about the shareholding structure, the management structure and information on the shares gained through tender offer within one week following the end of the offer period.

(a) Triggering events
The New Legislation requires the following events should be disclosed to the ISE (and the relevant online public disclosure platform):

  • A person becoming obliged to make a compulsory tender offer (whether an exemption will be sought or not)
  • A person making an exemption application should disclose the basis of this application before making the application.
  • A person should make a disclosure on the date when an offeror makes an application to the CMB for (a) a tender offer or (b) an exemption from a compulsory tender offer.
  • A person receiving the results of a tender offer or exemption application.
  • A person receiving the results of a valuation report deciding a tender offer price.
  • At the end of each transaction day during an offer period, the number and value of shares bought and the number of shareholders who have responded to the offer.
  • On the last day of the offer period, the total number and value of shares acquired and the total number of shareholders who have responded to the offer.
  • Immediately following the end of the tender offer period the person making the tender offer should disclose in detail the new shareholding/ management of the target company.
  • A person taking a decision to buy shares of a public company by a voluntary tender offer or deciding to withdraw from that voluntary tender offer.
  • A person taking an action to achieve offer price equality under the New Legislation.

(b) Disclosure documents
Same as for the Old Legislation.

It is expected the morespecific public disclosure rules in the New Legislation will result with a much stronger information flow from the target company and offerors to the offerees. This should help offerees decide whether to accept a tender offer or not.

8. Voluntary tender offer.

The Old Legislation contains basic rules for voluntary tender offers.

Under the New Legislation, investors can make a partial voluntary tender offer (i.e. a tender offer directed at a specific share group of the target public company).

Provides flexibility for investors.

Footnote

1. Please note that aspects of Communiqué Serial: IV No: 8 which do not relate to tender offers are still in force so this Communiqué has not become entirely extant.

Guner Law Office was established in 1996 and has since grown into one of the major corporate, M&A, banking, litigation, energy and TMT practices in Turkey. Guner Law Office is headed by Ece Guner and works with international law firm Denton Wilde Sapte.

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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