On 25 February 2020, Law No. 7222 Amending the Banking Law and Other Laws (“Amending Law”)1 entered into force and brought several amendments to the Capital Markets Law No. 6362 (“CML”),2 the main piece of legislation regulating Turkish capital markets. The amendments aim to align Turkey’s capital markets with international standards through more effective, clear, and equitable rules.
According to the CML, a mandatory tender offer (“MTO”) is required for the acquisition of shares or voting rights that change management control3 in publicly held companies listed on Borsa Istanbul. Pursuant to the CML, the Capital Markets Board (“CMB”) is vested with the authority to determine the principles and procedures to launch an MTO and exemptions in relation to the same. To that end, in parallel with the harmonization of the secondary legislation in line with the abovementioned amendments made to the CML, the CMB prepared the Draft Communiqué Amending the Communiqué No. II-26.1 on Tender Offers (“Draft Communiqué”) amending Communiqué No. II-26.1 on Tender Offers (“Current Communiqué”)4 and presented it for public opinion on its website on 1 February 2021.5
The main amendments contemplated in the Draft Communiqué can be summarized as follows:
- Regulation of the eligibility criteria for the determination of shareholders and share amounts that can benefit from MTOs.
- Simplification of the principles regarding the calculation of the MTO price.
- A change in the reference interest rate applied to the MTO price.
- Extension of the exemptions where there is no obligation to make an MTO.
- The addition of a new provision regulating that the matters added to brokerage agreements cannot restrict the participation of shares with a transaction ban, legal dispute, or other claims in the MTO.
- The addition of the requirement to list the investment firm for whom the form was signed to the real persons and/ or legal entities that are liable for the accuracy of the information presented to the CMB in the MTO information form.
With the proposed amendments, cases where an MTO is not triggered and exemptions to MTOs are clarified and broadened with the goal of providing investors more confidence to engage in transactions and to add flexibility to the market in order to boost the efficiency and pace of transactions. In addition, in the event of extraordinary economic developments, investors are empowered to reset the price and ask for the MTO to be discontinued, which makes it convenient for investors to maneuver through unforeseen circumstances.
Who Can Benefit from MTOs and Their Share Amounts
While the Draft Communiqué does not propose any changes to the general definition of the conditions set forth under the Current Communiqué that give rise to an MTO, which are the acquisition of shares that leads to management control or the acquisition of voting rights by an individual or parties acting in concert through voluntary offers, block or singular purchases, or any other means, the Draft Communiqué does clarify that the offerees are those who “[hold] the stock or voting rights in question on the day the relevant share acquisition is announced to the public.” This amendment was made in parallel with the addition introduced to Article 26 of the CML by the Amending Law, which regulates that MTOs will only be applicable to shareholders who owned shares on the date the transaction causing the change of control of the relevant publicly held company is announced to the public. Since the amendment to Article 26 of the CML entered into force on 25 February 2021, as of this date, those who acquire shares after the date of the public disclosure regarding the change of control will not have the right to sell their shares through the MTO process.
The Draft Communiqué further specifies the dates that should be taken into account when calculating the amount of shares that may benefit from the MTO. Accordingly, the amount of shares that can benefit from the MTO should be calculated by deducting the amount of shares sold (if any) between the disclosure date on which the acquisition of shares or voting rights that give rise to management control of the company was disclosed to the public (or the date on which the special written agreements between the shareholders to take over the management control of the company were disclosed to the public if this is the case) and the starting date of the actual tender offer period, from the end of the day net balance, on a last-in-first-out basis.
When determining the shareholders in the company as of the date of the public disclosure and their share amounts, matched orders are taken into account regardless of whether the settlement is complete.
Furthermore, the Central Securities Depository of Turkey (Merkezi Kayıt Kuruluşu A.Ş.) should provide a list of the shareholders to whom an MTO will be made and their share amounts in the target company one business6 day before the date the actual tender offer period starts.
The MTO Price Calculation
The Draft Communiqué substantially amends and simplifies the purchase price calculation method under the Current Communiqué to eliminate uncertainties under different scenarios, such as having direct or indirect management control of the target company or whether the target company is a publicly held company.
If there is a direct change in the management control of the target company, the price of the target company shares or classes of shares traded on the stock market may not be less than:
- The arithmetic average of the daily adjusted weighted average stock market prices in the six- month period before the date the acquisition of management control through purchases made without an agreement or through a special written agreement for the acquisition of management control without changing the shareholding structure of the company is announced to the public; and
- The highest price paid by the target company to the same group shares within the six-month period preceding the date on which the MTO obligation arises, including the individuals who make the MTO and purchase the shares that trigger the MTO by others acting in concert with such persons.
On the other hand, the price of the target company’s shares or classes of shares that are not traded on the stock market may not be lower than:
- The price determined in the valuation report prepared in accordance with the CMB’s valuation regulations, taking into account the privilege differences between share groups; and
- The highest price paid by the bidder or persons acting in concert with the bidder for the same group of shares of the target company to the same group of shares within the six-month period preceding the date on which the MTO obligation arises, including direct share purchases leading to the MTO.
In case of an indirect change in the management control of the target company, the MTO price cannot be determined as less than the highest of:
- For target company share groups not traded on the stock market, the price determined in the valuation report prepared in accordance with the CMB’s valuation regulations, taking into account the privilege differences between share groups;
- The highest price paid for purchases made by the relevant share groups of the target company within the six-month period before the MTO obligation is triggered; and
- If the shares of the target company are traded on the stock market, if any special written agreements regarding an indirect change of control through the acquisition of shares or special written agreements leading to the indirect change in control exists, the arithmetical average of the daily adjusted weighted average stock prices occurring during the six month period prior to the date the agreement relating to the sales of shares of the target company is publicly announced, or in the absence of such agreement, the arithmetical average of the daily adjusted weighted average stock prices occurring during the six month period prior to the date of the change of control relating to sales of shares of the target company is publicly announced.
New Authorities Granted to the CMB
Unlike the Current Communiqué, the Draft Communiqué grants the CMB the right to have the share prices recalculated or to cancel the MTO if they decide that there are ongoing exceptional trends affecting the economy or business. Furthermore, the CMB will have the power to impose limits on or take other preventive steps regarding transactions they consider market manipulation under the CML.
Reference Interest Rate
According to the Current Communiqué, if the price in the transaction leading to the MTO is determined in Turkish Liras and the obligation to initiate the MTO is not fulfilled within two months from the transaction date, then for each day exceeding two months, the amount of interest will be calculated over the TRLIBOR7 plus 50% per annum will be added to the MTO price. Under the Draft Communiqué, the TLREF8 is proposed to replace TRLIBOR as the reference interest rate while EURIBOR9 and LIBOR10 remain available for foreign currencies, and the CMB has been granted the authority to decide which reference interest rate will be used if TRLIBOR, EURIBOR, and LIBOR11 cease to exist. Moreover, the Draft Communiqué protects the purchaser by holding them exempt from the elevated selling price in comparison with the TLREF in situations where the real tender offer process fails to begin on time due to conditions that were not the bidder’s fault.
Additions to the Circumstances that do not trigger an MTO and Exemptions to the MTO Obligation
The Draft Communiqué clarifies the circumstances under the Current Communiqué that will not trigger an MTO and introduces additional non-triggering circumstances. According to the Current Communiqué, if a change of control occurs as a result of an intra-group transaction (in other words, if there is no change of control), the MTO will not be triggered. The Draft Communiqué clarifies that intra- group transactions do not trigger an MTO for voting rights that result in management control if these rights are obtained by share transfer transactions made between legal entities with the same real persons or legal entities involved in such transactions or between these persons and entities with management control.
The Draft Communiqué lists the following new circumstances that do not give rise to an MTO in addition to the existing exemptions listed under the Current Communiqué:
- If the squeeze-out and sell-out rights arise as a result of obtaining management control;
- For publicly held companies listed on the stock exchange, changes in management control due to new share acquisitions made by existing shareholders through participation in capital increases in which the rights to purchase new shares are not restricted; and
- Unintended changes to management control for reasons such as freezing the voting rights of some shareholders other than itself, reducing capital through the redemption method, amending privileges with the articles of association, or repurchasing shares by the company.
If any of the circumstances occur where the obligation to initiate an MTO is triggered, a public disclosure must be made on the Public Disclosure Platform (KAP in Turkish) within two business days following this circumstance at the latest by those who have obtained management control.
In addition to the existing exemptions to the MTO obligation set forth under the Current Communiqué, the Draft Communiqué also authorizes the CMB to grant exemptions upon application in cases where management control changes as a result of an estate’s succession or a legitimate matrimonial property regime between the spouses.
The Current Communiqué requires the bidder to sign a brokerage agreement with an investment firm and specifies the minimum content of such agreement. The Draft Communiqué clarifies the uncertainties regarding the content of the brokerage agreement, and accordingly, clarifies that the participation of the shares with a transaction ban, legal dispute, or other claim in the MTO cannot be restricted by adding a clause to the brokerage agreement. If the MTO includes these shares, their purchase price will be held in a blocked account until the ban is lifted or legal proceedings are settled.
Liability of Investment Firms
As is the case in the Current Communiqué, the Draft Communiqué obliges bidders to fill out the standard MTO information form annexed to the Current Communiqué for MTO applications to be made to the CMB. Bidders and investment firm officials must jointly sign the information form before submitting it to the CMB. While the Current Communiqué regulates that only bidders and authorized person(s) of the investment firm signing the information form are liable for any incorrect, misleading, or incomplete information, the Draft Communiqué keeps these persons liable and extends this liability to the investment firms for whom the information form was signed.
If the Draft Communiqué is enacted as is, it may be considered as a forward-looking move towards removing the vagueness surrounding the principles and procedures regulating MTOs, which will benefit both bidders and offerees. The proposed amendments to clarify the scope of MTOs, simplify the MTO price calculation method, and broaden the scope of non-triggering events and exemptions will hopefully provide remarkable comfort to investors and encourage them to increase their existing investments in the Turkish market while attracting new actors to enter the market. Furthermore, the extension of liability to investment firms themselves for the information provided on the required form will also ensure confidence and enable companies to access accurate and correct information.