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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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:
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:
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):
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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:
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Under the New Legislation a person can apply to the CMB to be exempt from a compulsory offer if they meet the following conditions:
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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:
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The compulsory tender offer timeline under the New Legislation is as follows.
The New Legislation also describes in detail the timeline which will apply if the CMB rejects a company's exemption application:
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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 (b) Disclosure documents
|
(a) Triggering events
(b) Disclosure documents |
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.
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