- Mandatory Tender Offer Obligation in General
Under Turkish law, in the event that shares or voting rights entitling the control of management of Turkish publicly held corporations have been acquired, it is mandatory for the acquirer to make an offer in order to purchase the shares of other shareholders as of the date of announcement of the acquisition of such shares or voting rights (Art. 26 of the Capital Market Law No. 6362). The procedures and principles regarding the execution of tender offers and the exemption from the obligation of tender offer are determined in the Tender Offer Communiqué (II-26.1) ("Communiqué") which was issued by the Capital Markets Board ("CMB" or "Board") in 2014, lastly amended on 16.10.2021.
Holding directly or indirectly more than 50% of the voting rights of the corporation alone or together with persons acting in concert, holding privileged shares granting the right to elect the absolute majority of the members of the board of directors or the right to nominate the same number of members as directors in the general assembly shall be deemed as acquiring control of management.
The obligation to make a tender offer arises also upon acquisition of control through special written agreements signed between shareholders (e.g., SHAs), even if no change occurs in the shareholding structure of the corporation.
- Exemption From Mandatory Tender Offer Obligation
Cases where obligation to make a tender offer does not arise are set forth in Article 14 of the Communiqué, while exemptions from making a mandatory tender offer is regulated under Articles 18 and 19 of the Communiqué. In this article, we will examine one of the exemption grounds, namely the "no intention to acquire control in the publicly held corporation" which is specified under Article 18.1.c of the Communiqué.
The CMB may grant exemption from the obligation to make a mandatory tender offer if one of the grounds stated under Article 18 of the Communiqué exists and is proved by application of the acquirer (the party who acquires the ultimate management control after closing of the transaction). Among the other exemption grounds, Article 18.1.c of the Communiqué stipulates that if the following event occurs, exemption may be granted by the Board:
"If a change in control of parent company of a publicly held corporation does not intend to acquire control in the publicly held corporation (For purposes of detecting the fulfilment of this condition, the Board shall take into consideration issues such as; the target corporation's effect on total assets as shown in the last annual financial statements of parent company not exceeding 10%, and the target corporation not occupying a significant part of the volume of business operations of the parent company, and similar other issues relating thereto)"
The exemption ground indicated in Article 18.1.c of the Communiqué will need to be proved before the Board by economic and financial arguments. In line with this ground, it should be argued that the change in control of parent company is an inevitable result, although the main reason and motivation behind the transaction is not to acquire the control of the target (the publicly held corporation), therefore such intention and purpose do not exist. Although the means of evidencing this argument is not restricted and other economic and financial evidence can also be submitted if available, the most effective ones will be to prove that; (i) the target's effect on total/consolidated assets of the acquirer does not exceed 10% as per the last annual financial statements, (ii) the target does not occupy a significant part of the volume of business operations of the acquirer and (iii) the target does not occupy a strategic place in the acquirer's purpose to make the transaction by emphasizing the indirect nature of the control change which takes place at the indirect shareholding step.
In the event that all parent companies in the shareholding chain are headquartered abroad, mandatory tender offer's statutory purpose may not exist in this case and many practical problems may arise during the mandatory tender offer process if exemption is not granted (Prof. Dr. Çaglar Manavgat, Hukuki Bakimdan Halka Açik Anonim Ortakliklar ve Halka Arz, Banka ve Ticaret Hukuku Arastirma Enstitüsü, Ankara, 2016, pp. 372, 373).
Since the purpose of mandatory tender offer is to protect investors who own the publicly traded shares of listed corporations against any potential adverse effect of control change, if the acquirer does not expect or intend to make changes in the target's management and does not have any other strategic plans to make substantial changes within the target following the acquisition, it should not be expected that the investors will incur adverse effects as a result of the indirect control change. Economic and financial arguments similar to the foregoing can be included into the exemption application in order to prove that the application satisfies the conditions sought under Article 18.1.c of the Communiqué.
- Exemption Application to the CMB
For exemption requests, an application is required to be filed with the CMB by those who are obliged to make an offer within six business days following the date the obligation to make a mandatory tender offer arises (i.e., the date transaction gains legal validity).
As a result of review and assessment of the information and documents to be submitted to the CMB, exemption may be granted if it is concluded by the CMB that the exemption conditions have been satisfied and the ground is duly proved.
- Rejection of Exemption Application by the CMB
If the application for exemption is not approved by the Board, then, the period of initiation of actual tender offer process which is specified as one month will begin following the date of the CMB decision.
Also, within six business days following the date of the CMB decision, an application is required to be made to the CMB for mandatory tender offer, with the information and documents listed in the Communiqué.
First of all, the required information and documents should be submitted to the Board within the stipulated timeline (mandatory tender offer application).
Then the offeror needs to start the actual tender offer process within one month following the date of the disapproval decision of the Board. In case of a failure to initiate the mentioned process, without prejudice to the provisions pertaining to exchange rates and interests, the Board may grant an additional period for completion of the actual tender offer process.
Actual tender offer process shall start within maximum six business days following the date of approval of the Information Form by the Board. The period of actual tender offer may not be less than 10 business days or more than 20 business days.
- Sanctions for Failure to Comply with the Tender Offer Requirements
If actual tender offer process cannot be completed within the timeline (within one month or at the end of the additional period), an administrative fine up to the total price of shares covered by the tender offer may be imposed on the acquirer.
Also, if the periods are not abided by, voting rights held by the acquirer will be automatically frozen as of the date of occurrence of the said breach, without any further act or action of the Board. Said shares will not be taken into consideration in determination of general assembly meeting quorum. Frozen voting rights will be automatically released without any further act or action of the Board in the first day following completion of the mandatory tender offer process.
- Disclosure Requirements During the Process
As per Article 10 of the Communiqué, certain issues shall be disclosed by the acquirer to public under principles of the Board pertaining to disclosure of material events to public. The disclosure is made via the Public Disclosure Platform ("PDP"). Among others, the following issues need to be announced on the publicly held corporation's PDP page:
- Decision to make a tender offer,
- Emergence of a mandatory tender offer requirement, whether an exemption will be requested from the CMB or not, and if an exemption will be requested, relevant article of the Communiqué upon which the exemption application will be filed,
- Information on tender offer price or how this price will be determined,
- An actual application to the CMB for an exemption from the obligation of making a mandatory tender offer or for making a tender offer,
- Result of the process of application filed to the Board for an exemption from the obligation of making a tender offer or for making a tender offer.
The foregoing PDP announcements should be made outside stock trading hours.
Sources:
- Capital Market Law No. 6362
- Tender Offer Communiqué (II-26.1) (with the latest amendments made on 16.10.2021)
- Prof. Dr. Çaglar Manavgat, Hukuki Bakimdan Halka Açik Anonim Ortakliklar ve Halka Arz, Banka ve Ticaret Hukuku Arastirma Enstitüsü, Ankara, 2016
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.
