The Turkish Capital Markets Board ("CMB") previously published the Draft Communiqué on Squeeze-Out and Sell-Out Rights on October 28, 2020 for public consultation and the new Communiqué No. II-27.3 on Squeeze-Out and Sell-Out Rights ("Communiqué") entered into force upon its publication on the Official Gazette numbered 31351 and dated December 31, 2020, abolishing the previous communiqué on the same matter. In this article, we will take a deep dive into the significant provisions of the Communiqué.
I. General Overview
The purpose of the Communiqué is to regulate the squeeze-out rights of the controlling shareholder(s) and the sell-out rights of the non-controlling shareholders in publicly held joint-stock companies ("Company").
The draft communiqué's most important changes had been the decrease of the squeeze-out and sell-out threshold from 98% to 95%, and the revised method of calculation for the squeeze-out and sell-out prices.
However, the published Communiqué maintained the threshold at 98%, in line with the former (abolished) version despite the reduced threshold proposed under the draft. In light of this, if the direct or indirect voting rights held by a shareholder, or by shareholders acting in concert, reach or exceed 98% of the Company's total voting rights, then squeeze-out and sell-out rights can be exercised.
On the other hand, the acquisition of shares by current shareholders through bonus issues and/or through capital contributions not restricted by pre-emptive rights; transfer of shares under inherited estates, share buybacks, and a freezing of voting rights shall not trigger the squeeze-out and sell-out rights.
In addition, per Article 5/14 of the Communiqué, the controlling shareholders will not be required to submit a mandatory tender offer, if the control of management in the Company is acquired simultaneously with the squeeze-out and sell-out rights being triggered.
II. The Procedure of Exercising Sell-Out and Squeeze Out Rights
Per Article 5/1 of the Communiqué, as soon as the voting rights held by controlling shareholders reach the 98% threshold (or if the controlling shareholder above the threshold acquires additional shares), such event must be disclosed to the public. A share price valuation report must be prepared within one month of disclosure, and a summary shared with the public. The non-controlling shareholders can apply to the Company in writing for the exercise of their sell-out rights within two months of the disclosure of the summary report.
Following the receipt of the sell-out applications, the controlling shareholders must pay the relevant share prices to the Company accounts, which the Company will then transfer to the shareholders who have exercised their sell-out rights, in the following business day. The share transfer is deemed to be concluded on the day when the Company pays the share prices to the selling shareholders. It is worth mentioning that the Communiqué allows the shareholders to use their sell-out rights through investment institutions.
Under Article 5/6 of the Communiqué, the controlling shareholders requesting to exercise their squeeze-out rights, must apply to the Company within three business days, following the above two-month period for the exercise of sell-out rights. This application must also contain either a bank guarantee letter that covers the total amount for the shares to be squeezed-out, or documents proving that sufficient cash funds have been reserved in a bank account.
After receiving the application, the Company's board of directors must adopt a resolution within five business days, for the cancellation of shares held by non-controlling shareholders, and the issuance of new shares to be delivered to the controlling shareholders. Following the resolution, the board must apply to the CMB within ten business days, for the approval of issuance document. Companies whose shares are traded on the stock exchange must also apply to the stock exchange for deletion of their shares.
The controlling shareholder must transfer the total amount related to the exercise of squeeze-out right, to the accounts of the Company, within three business days after the approval of CMB. The Company must then apply to the trade registry for registration of the approved issuance document and its publication in the trade registry gazette, within three business days after the total price of the squeezed-out shares are paid into the Company accounts. The squeezed-out shares are deemed to be cancelled on the registration date.
In addition, the Company must carry out the necessary procedural steps for: the transfer of the payments to the accounts of the non-controlling shareholders, cancellation of their shares, and transferring the new shares to be issued to the controlling shareholders, once the controlling shareholders pay the total price for the squeeze-out right. These procedures must be undertaken through the Merkezi Kayit Kurulusu A.S. (the central depository for securities) if the Company's shares are traded in the stock market, or its shares are not traded but dematerialized; and if not, directly with the shareholders.
III. Calculation of Squeeze-Out and Sell-Out Prices
Squeeze-out and sell-out prices must be paid in Turkish lira and in cash. Article 6 of the Communiqué regulates the calculation of squeeze-out and sell-out prices. Unlike the abolished communiqué, Article 6 of the Communiqué stipulates that the calculation method will be same for squeeze-out and sell-out rights. Accordingly:
- For Companies whose shares are being traded, the price shall be
whichever is higher of the following:
- For Companies listed on the "Yildiz" Market; the average of the daily corrected weighted average prices for the last month (six months for Companies listed on other markets and platforms) before the disclosure of the triggering event of the squeeze-out and sell-out rights to the public and the value calculated in the valuation report; and
- Mandatory tender offer price calculated in accordance with the mandatory tender offer regulations, if acquiring controlling shareholder position results in change of management control simultaneously.
- For Companies whose shares are not being traded, the price
shall be whichever is higher of the following:
- The value determined in the valuation report; and
- Mandatory tender offer price calculated in accordance with the mandatory tender offer regulations, if acquiring the controlling shareholder position would also simultaneously result in a change of management control.
IV. Transition Period
As a transition period, the abolished communiqué on squeeze-out and sell-out rights will apply to calculation of the exercise price of the sell-out and squeeze-out rights in cases where the public disclosure required for sell-out and squeeze-out rights had been made before entry into force of the new Communiqué (i.e., December 31, 2020).
V. Conclusion
Due to the recent amendments made to the Capital Markets Law and demands of the market, the CMB published the new secondary legislation on squeeze-out and sell-out rights in publicly held joint-stock companies. Despite the proposed reduced figure in the communiqué draft published by the CMB for public consultation, the official Communiqué did not change the squeeze-out and sell-out threshold and retained it as 98%. Therefore, the most significant novelty of the new Communiqué is the change of calculation method for the squeeze-out and sell-out prices.
This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in March 2021. A link to the full Legal Insight Quarterly may be found here
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.
