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December 21, 2023

Mandatory Takeover Bids In Publicly Held Corporations

INTRODUCTION

A takeover bid, defined in the capital markets legislation as “a purchase offer made to persons holding the capital shares of a corporation for voluntary or mandatory acquisition of all or some of the capital shares of that corporation, resulting in or aiming to result in acquisition of management control of the target corporation, other than those made by the target corporation itself”, is in principle an institution to protect investors. Takeover bids can be made on a mandatory and voluntary basis, and within the framework of the Capital Markets Law No. 6362 (“CML”) and the Capital Markets Board’s (“Board”) Communiqué on Takeover Bids numbered II-26.1 (“Communiqué”), a mandatory takeover bid is a regulation that makes it compulsory to make a takeover bid regardless of whether the person who obtains management control has the will to make the bid or not, and thus allows investor shareholders to exit the partnership by selling their shares at a fair price.

The takeover bid becomes mandatory due to significant transactions pursuant to article 25 of the CML or in case of acquisition of shares or voting rights that entitle the management control pursuant to article 26. In this context, it is obligatory to make a bid to purchase the shares of other shareholders who are shareholders on the date of public disclosure of the acquisition of such shares or voting rights.

ACQUISITION OF MANAGEMENT CONTROL

Pursuant to the Communiqué;

  1. Direct or indirect holding of more than fifty percent of voting rights of a corporation, alone or jointly with persons acting in concert,
  2. Holding privileged shares enabling their holder to elect simple majority of total number of the members of the board of directors or 
  3. To nominate for the said number of directors in the general assembly meeting

indicate the existence of management control. The cases where management control cannot be acquired due to existence of privileged shares are not considered within this scope. 

In determination of whether or not the shareholders hold the management control, corporations the control of which are held by the such shareholders; and in terms of legal entity shareholders, natural persons and/or legal entities holding control of such shareholders, and corporations the control of which are held by these persons are taken into consideration.

Except for the above-mentioned criteria, the holding of a right to elect simple majority of total number of members of the board of directors due to capital structure of the corporation or due to the actual situation in the general assembly meeting is not construed as acquisition of management control.

Persons who, directly or indirectly, acquire the shares or voting rights providing the management control of a corporation, are under obligation to submit a takeover bid for purchasing the shares of others who are shareholders at the date of public disclosure of this acquisition. Those persons may have acquired the shares or voting rights providing control through a voluntary partial takeover bid, or block and/or individual purchases, or by any other method, or they may have acquired them alone or jointly with persons acting in concert. In such case, the date of public disclosure of the acquisition is taken as basis in determining the shareholders who shall benefit from the mandatory takeover and the share amounts.

Article 26 of the CML stipulates that even where no change occurs in the shareholding of the corporation, gaining of control of management by some shareholders through specific arrangements they would conclude between themselves without complying with procedures and principles foreseen for the significant transactions and qualified quorums in the general assemblies of publicly held corporations, shall also give rise to the obligation to submit a takeover bid. Therefore, in order for the obligation to submit a takeover bid to arise, it is not necessary for an external shareholder to enter the company or for there to be any change in the voting rights of the existing shareholders. The Communiqué states that such agreements to be made between shareholders are special written agreements, and the date of public disclosure of the special written agreements shall be taken as a basis in determining the shareholders who shall benefit from the mandatory takeover bid and the share amounts.

However, in cases stipulated in the CML, it is also possible to impose an obligation to submit a takeover bid by a decision of the Board.

MANDATORY TAKEOVER BID PROCESS

Within 6 business days following the acquisition of the shares giving management control, it is obligatory to file an application to the Board for a takeover bid, with information and documents listed in the annex of the Communiqué. In cases where the Board determines ex officio that the obligation to make a takeover bid arises, the application must be made within 6 business days following the date of notification of the Board’s decision to the obligors.

It is required to start the actual takeover bid process within 2 months following the date the obligation to make a takeover bid arises. The Board may, if necessary, grant an additional period to the relevant person/persons to start the actual takeover bid process.

If the actual takeover bid is not completed until the end of the deadline for the completion of the takeover bid, voting rights held by natural persons and/or legal entities being obliged to make a takeover bid and by persons acting in concert with them are automatically frozen as of the date of occurrence of the said breach, without any further act or action of the Board. Such shares are not taken into consideration in determination of general assembly meeting quorum. Regardless of the reasons of freezing, and unless otherwise decided by the Board, frozen voting rights are automatically released without any further act or action of the Board in the first day following completion of the mandatory takeover bid process.

In any case, if the actual takeover bid is not completed by the end of the deadline for the completion of the takeover, an administrative fine up to the total value of the shares subject to the bid is imposed on real and legal persons who fail to fulfill the obligation to make a takeover bid.

CASES WHERE OBLIGATION TO MAKE A TAKEOVER BID DOES NOT ARISE

The events where there is no obligation to make a takeover bid are regulated as follows pursuant to the Communiqué:

  1. Acquisition of management control as a result of a voluntary takeover bid submitted to all shareholders for all of the shares in their possession,
  2. Approval by the general assembly of the company of the special written agreement that leads to the acquisition of management control and granting the right to exit to those who vote negatively and file a dissenting opinion in the minutes.
  3. The controlling shareholder, after the percentage of his/her shares in the corporation falls below 50%, reacquires more than 50% of voting rights of the corporation through new share purchases provided that the control was yet to be acquired by third parties,
  4. Share transfer transactions between the bidder and persons acting in concert,
  5. A person who becomes a shareholder of the company with a shareholding rate of maximum 50% by acquiring a portion of the shares belonging to the existing shareholders who have management control or by acquiring shares through a capital increase; shares the management control of the company for the first time with an equal or lesser shareholding rate within the framework of the written agreement between himself/herself and the existing shareholders,
  6. The right to dispose of the partnership and the right to sell arises with the acquisition of management control,
  7. In capital increases realized by publicly traded corporations whose shares are traded on the stock exchange, change of management control due to the shares acquired by the existing shareholders,
  8. Becoming the controlling shareholder due to reasons such as freezing of voting rights of some shareholders, reduction of capital through redemption of shares, changes in share privileges or repurchase of shares by the company.

EXEMPTION

The Board may grant exemption from the obligation to make a takeover bid in certain circumstances specified in the Communiqué. Exemption is granted upon request, and if the Board concludes that the conditions for exemption set forth in the Communiqué are met, the relevant persons may be exempted from the obligation to make a takeover bid. The following matters are included in the scope of exemption:

  1. Capital structure changes required to strengthen the deteriorating financial standing,
  2. Disposal of or commitment to dispose of the portion of the shares held in the company’s capital that requires a mandatory takeover bid,
  3. The change of management control in the parent company is not intended to acquire management control in the publicly held corporation,
  4. Sales of shares of public sector in publicly held corporations covered by privatization,
  5. Change in management control arising from a merger transaction to which the merging entity is a party as a transferee,
  6. Shares given to the bank as collateral for the loan are transferred to the of the bank, to a special purpose entity of which the bank is a founder, or purchased by third parties after such transactions,
  7. Transfer of shares for the purpose of fulfilling a legislative requirement in relation to the definition of the nature of shareholding,
  8. The acquisition of shares leading to the acquisition of management control resulting from inheritance, division of inheritance, property regime provisions between spouses or legal obligations.

IN CONCLUSION

Mandatory takeover bids allow investors to exit from joint-stock companies the shares of which are offered to public or are deemed to have been offered to public, in the event of a change in management. In this way, it is ensured that the shareholders who cannot comply with the new management leave the company without loss. With the Communiqué, the principles regarding pricing are placed to prevent investors from incurring losses from sales, and the situations where a takeover bid is obligatory and transactions exempt from the mandatory bidding are determined.

Authors

Gülenay Kavcar

Gülenay Kavcar

Gökçe Ergün

Gökçe Ergün

Lawyer

Elif Kalebek

Elif Kalebek

Lawyer