Only four months after issuing a comprehensive set of rules on squeezing out minority shareholders of public companies, the Turkish Capital Markets Board (CMB) unexpectedly reversed course with an entirely new set of rules. The new rules, which entered into force on November 12, 2014, change the squeeze-out and sell-out procedures as well as the methodology for calculating the price paid to exiting minority shareholders.
Phase-in of new thresholds
Unlike the earlier rules, the squeeze-out threshold is now based on voting rights, rather than the number of shares held. The new rules also gradually increase, over a three-year phase-in period, the majority shareholder requirement from the current 95% threshold to 98%.
Sequence for exercising sell-out and squeeze-out rights
The new rules give priority to selling minority shareholders. Once the majority shareholder becomes eligible to squeeze-out minority shareholders, a minority shareholder has the right to put its shares to the majority shareholder within three months. If any minority-held shares are not sold during the three-month sell-out period, the majority shareholder can then call the minority shares. The majority shareholder is able to exercise its squeeze-out right within three business days after expiration of the three-month notice period during which minorities can exercise their sell-out rights.
The procedure to exercise the squeeze-out right remains unchanged and the squeeze-out price is still the weighted average trading price of the shares for the last 30 days prior to the majority shareholder’s disclosure of its intent to purchase minority shares.
Determination of prices and payment methods
The minority sell-out price is the highest of: (i) the weighted average trading price of the shares for the last 30 days prior to the majority shareholder’s disclosure of its intent to exercise its squeeze-out right; (ii) the amount specified in an independent valuation determining the value of each class or group of shares; (iii) the share price used in transactions such as a tender offer or merger in the last year prior to the majority shareholder’s disclosure of its intent to exercise its squeeze-out right; and (iv) the weighted average of the weighted average trading price of the shares: (x) for the last 180 days, (y) the last year, and (z) the five years prior to the majority shareholder’s disclosure of its intent to exercise its squeeze-out right.
Pending squeeze-out applications
Since July 1, 2014, the majority shareholders of several Turkish public companies have exercised their squeeze-out rights (such as Türk Demirdöküm, OMV POAŞ and Mutlu Akü), with the companies' applications still pending with the CMB. The CMB has also adopted an interim system for these applications.
A majority shareholder which has already announced its intent to exercise its squeeze-out right has one month to decide whether to proceed with the squeeze out. If the majority shareholder does not proceed with the squeeze out, the minority shareholders can still exercise their sell-out rights if the majority shareholder purchases additional shares in the future. If the majority shareholder proceeds with the squeeze-out, it must publicly announce its intent to do so. The minority shareholders then have priority to exercise their sell-out rights during the three-month period. This period commences immediately upon the majority shareholder’s public announcement. In this case, the date for calculating the prices will be the date on which the majority shareholder has initially disclosed the exercise of its squeeze-out right.
The Turkish investor community had often complained about the earlier squeeze-out regime. As a result, the CMB has tried to improve the system to provide for a fairer valuation for both majority and minority shareholders.