I. Introduction

Under Article 26(1) of the Turkish Capital Markets Law (“Law”), an acquisition of shares entitling management or voting rights obliges the acquirer to make tender offers to the other shareholders, to purchase their shares. The Law authorizes the Turkish Capital Markets Board (“Board”) to regulate the procedures and principles with regard to such mandatory tender offers pertaining to publicly held companies. To that end, the Board`s Communiqué on Tender Offers No II-26.1 (“Communiqué”) was published and came into force on January 23, 2014, repealed the Communiqué on Principles Regarding Takeover Bids (Serial: IV, No. 44) and was subsequently amended three times.. This Article will cover the recently proposed changes under the Draft Communiqué No. II-26.1.ç Amending the Communiqué on Tender Offers No. II-26.1 (“Draft Communiqué”), which are mainly focused on the scope of mandatory offers, calculation of the amount and value of the shares, and exceptions to mandatory offers.

II. Changes Proposed under the Draft Communiqué

  • Shareholders and Share Amounts

Article 11 of the Communiqué defines who falls within the ambit of mandatory offers and the methods for calculating the share amounts. The broad definition of circumstances giving rise to mandatory offer remains unchanged: “the acquisition of shares giving rise to management control or acquiring management rights, by an individual or parties acting in concert, through voluntary offers, block or singular purchases or any other means.”

The Draft Communiqué clarifies that the offerees will be those who were “holders of the shares or voting rights in question, on the date that the above mentioned share acquisition is disclosed to the public.” The Draft Communiqué further provides the method for calculating the amounts of the shares in question with respect to companies listed on the stock exchange.

The share amounts shall be calculated by deducting the amount of shares sold (if any) between the disclosure date mentioned above and the starting date of the actual purchase offer period, from the end of day net balance, on a “last-in-first-out” basis. Furthermore, when determining the shareholders and their share amounts, matched orders are included as well, even if they are yet to be cleared. The list of such shareholders and their respective share amounts shall be submitted to the target company by the Central Securities Depository of Turkey (“MKK”), one business day before the date the actual offer period starts.

  • Information Form

The bidders are obliged to fill out the information form annexed to the Communiqué, which is then co-signed by the bidder and the authorized persons of the investment firms, before being submitted to the Board. With the proposed amendment in Article 7 of the Draft Communiqué the liability arising from any incorrect, misleading, or incomplete information on the form, is also extended to the investment firm and the authorised person(s) who signed it.

  • Additions to the circumstances which do not trigger the tender offer obligation and the exceptions to mandatory offers

Circumstances which would not give rise to mandatory tender offers are listed under Article 14 of the Communiqué. Pursuant to the Draft Communiqué, it will be compulsory for the person(s) acquiring the management control to announce that the acquisition falls under the non-triggering circumstances listed under Article 14, latest within the following 2 (two) business days. The Draft Communiqué also adds the following new circumstances to the non-triggering circumstances:

  • Where shares are acquired from the shareholders with managing control, or from the shares newly issued by a capital increase, provided that the acquired voting rights are 50% or lower, and the management control is being shared for the first time pursuant to a written agreement, in equal or lower ratios, with those shareholders who had control before the share transfer,
  • Where squeeze-out and sell-out rights arise simultaneously with the acquisition of management control,
  • With regard to companies listed on the stock exchange, where the management control is changed due to the existing shareholders` acquisition of shares by way of a capital increase with no limitations on new share purchases,
  • Where management control is obtained involuntarily, due to reasons such as freezing of the voting rights of other shareholders, reduction of the capital by way of share redemption, amendments to share privileges under the articles of association, or the company buying back its own shares.

The Draft Communiqué also introduces an addition to Article 18 on the exceptions to mandatory offers, with respect to the instances where control of management is transferred as a result of the inheritance of an estate, or the legal matrimonial property regime between the spouses.

  • The mandatory offer price

The draft purchase price mechanisms amend the previous provision and remove ambiguity as to the applicable mechanisms under different scenarios, namely acquiring the management control of the target company directly or indirectly, or whether the target company is listed on the stock exchange or not.  Moreover, in addition to its right to take measures or put restrictions on transactions which are deemed to be market manipulations pursuant to Articles 101 and 107 of the Law, the Board will also have the right to have the share prices re-calculated or to suspend the tender offer, if they conclude that there are on-going extraordinary developments affecting the economy or the industry.

  • Brokerage agreement

Article 9 of the Communiqué obliges the bidder to sign a brokerage agreement with an investment firm and also sets out the minimum requirements of the agreement. The Draft Communiqué adds another stipulation that, shares banned from transactions, subject to legal disputes or other third party claims cannot be excluded from the mandatory offer by way of incorporating a clause into the brokerage agreement. In case there are such shares in the offer, their purchase price is to be reserved under a separate and interest-bearing account, until the ban is lifted or legal claims resolved.

  • Interests and Reference interest rate

Under the Draft Communiqué, the TLREF (Turkish Lira Overnight Reference Rate) is proposed to replace TRLIBOR as the reference interest rate, reflecting the distrust in LIBOR, whilst keeping EURIBOR and LIBOR available for foreign currencies. Furthermore, the amendment to Article 17 offers protection to the bidder by keeping them exempt from the increased purchase price by reference to TLREF, in cases where the actual tender offer process fails to start on time because of such circumstances that were not due to the bidder`s fault.

III. Conclusion

The enactment of Draft Communiqué is predicted to be a good step forward for removing the ambiguities on procedures and principles governing mandatory tender offers, especially those that arose from the provisions` previous wording, which will benefit both the bidder and the offerees. With the clarification of the scope of the mandatory offers and the additional exception, the acquirers will have more confidence to engage in transactions. Moreover, the increased liabilities on investment firms and their authorised directors signing the information form will also ensure that the companies shall provide accurate information.

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.