M&A Dynamics In Publicly Traded Companies: New Investment Strategies Through Borsa Istanbul

In recent years, IPOs in Turkey have reached record levels. In 2023 and 2024, a large number of companies started trading in Borsa Istanbul as a result of initial public offerings (IPO) transactions. These IPOs, which attracted great interest from small investors, stand out as important strategic moves in which companies gain transparency and visibility, and also play a role as an important financing tool. With IPOs, publicly traded companies / partnerships are now drawing the attention of not only small investors but also domestic/foreign strategic and financial investors.

This increased interest and visibility have positioned publicly traded companies not only at the center of capital markets but also as key targets in merger and acquisition ("M&A") transactions.

So, why have publicly traded companies increasingly become target entities in M&A transactions? What makes being "public" a more attractive quality for a company?

The answer to this question lies in some of the obligations and advantages of being publicly traded.

• Public disclosure obligation and transparency: Article 15 of Capital Markets Law No. 6362 ("CML") requires issuers to publicly disclose material information that may affect the decisions of investors. Article 5 of the Communiqué on Material Events numbered II-15.1 ensures transparency in publicly traded companies by regulating the timely and accurate disclosure of such information. Thus, investors can access the necessary information quickly and reliably.
  

• Ease of valuation and market data: Stock prices of publicly traded companies can be viewed instantaneously. This makes it possible to value companies not only on the basis of financial statements but also on the basis of market valuation. Factors such as price, liquidity and investor behavior become part of strategic decisions for new investors.
  

• Liquidity and exit options: The fact that the shares are traded on the stock exchange offers the investor a possible exit strategy. This liquidity advantage is attractive for both strategic and financial investors.
  

• High visibility and brand awareness: Public companies are more visible to the media, investors and regulators. This visibility creates additional value for the buyer side in marketing and growth strategies.

The Capital Markets Board ("CMB") regulations set the framework for M&A processes in publicly traded companies, with a particular focus on protecting investor rights. Accordingly, certain specific regulations that must be taken into account in M&A processes involving publicly traded companies are summarized below.

What is the share purchase offer process to be made to other investors in the M&A process of publicly traded companies?

In the case of direct or indirect acquisition of shares in publicly traded companies in a way to ensure management control, the investor who makes such an acquisition is obliged to make an offer to other shareholders to purchase their shares. This is regulated by the Capital Markets Board's Communiqué on Share Purchase Offer numbered II-26.1.

Some of the important regulations regarding M&A transactions set out in the relevant Communiqué are as follows:

Mandatory Share Purchase Offer Obligation (Article 11): If a real or legal person directly or indirectly acquires "management control" of a company, they are required to make a mandatory offer to purchase the shares of the other shareholders as of the date the acquisition of control is publicly disclosed. Moreover, even if there is no change in the shareholding structure of the company, a mandatory offer obligation may still arise if management control is acquired through private written agreements between shareholders.

• Application to CMB (Article 13): Within 6 business days following the acquisition of management control, an application must be made to the CMB, together with the information and documents specified in the relevant Communiqué, to make a share purchase offer, and the actual share purchase offer must be initiated within 2 months from the date on which the share purchase offer obligation arises. The actual share purchase offer shall commence within maximum 6 business days following the approval of the information form by the CMB and cannot be less than 10 business days and more than 20 business days.
  

• Principles for Determining the Purchase Offer Price / Equality Obligation (Article 15-16): The share purchase offer price cannot be lower than the highest stock exchange price or purchase prices in the 6-month period prior to the date on which the share purchase offer obligation arises. A valuation report is required for unlisted shares. In addition, if shares are purchased at a higher price after the share purchase offer is made, the offer price is increased to this price. Investors who sold earlier are paid the difference.
  

• Public Disclosure (Article 10): All developments regarding both voluntary and mandatory share purchase offer must be disclosed to the public by the offeror in accordance with the material event disclosure provisions of the CMB.
  

• Sanctions (Article 13): If the obligation to make a mandatory share purchase offer is not fulfilled, the voting rights held by the natural and legal persons and legal entities obliged to make a mandatory share purchase offer and those acting in concert with them will be automatically frozen as of the date of such breach without the need for any further action by the CMB and the CMB may impose an administrative fine. On the first day following the completion of the mandatory share purchase offer transaction, the CMB shall automatically unfreeze the voting rights without any further action by the CMB.
  

What are the rights of the controlling shareholder / minority shareholder after the M&A process?

In publicly traded companies, the controlling shareholder, whose share in the company exceeds a certain percentage as a result of the M&A transaction, has the right to dismiss the minority shareholders from the company. Likewise, minority shareholders may also exit the company by selling their shares to the controlling shareholder. These provisions are regulated by the CMB Communiqué No. II-27.3 on Disposal and Put Rights.

Some of the important regulations regarding M&A transactions set out in the Communiqué are as follows:

• Exercise of squeeze-out and sell-out rights: In the event that the voting rights related to the shares held as a result of a share purchase offer or in any other way, including acting in concert, reach 98% of the voting rights of the partnership or in the event that additional shares are acquired while in this situation, the right to exclude other shareholders from the partnership arises for the controlling shareholder and the right to sell their shares to the controlling shareholder arises for the other shareholders.
  

• Public Disclosure: The controlling shareholder makes a public disclosure within the framework of the CMB's regulations on public disclosure of material events. Within one month at the latest following the disclosure, a valuation report is prepared by the company in accordance with the relevant regulations of the CMB in order to determine the share values and the summary of the report is disclosed to the public.
  

• Exception: The right to dismiss or sell cannot be exercised for a period of 2 years after the shares of the partnership start to be traded on the stock exchange for the first time.
  

In conclusion, CMB regulations aim to ensure that M&A processes in publicly traded companies are carried out in a transparent and predictable manner in favor of investors. While the CML constitutes the basic framework of this process, the relevant secondary regulations serve as the balance elements of the system. However, for companies, being publicly traded not only makes the company visible, but also makes it the focus of investor attention and the target of potential M&A processes in the eyes of investors.

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.