Mandatory Tender Offer (Mandatory Bid) Sell-Out Right and Squeeze-Out Mechanisms

The Concept and Purpose of The Mandatory Tender Offer

A mandatory tender offer refers to the obligation imposed on a person who, directly or indirectly, acquires control of a publicly held company—whether individually or acting in concert—to offer to purchase the shares of the remaining shareholders at a specified price. Pursuant to Communiqué No. II-26.1, this obligation constitutes a mandatory regulatory mechanism aimed at balancing the fact that minority shareholders become subject to a new control structure without their consent following a change of control.

The prevailing view in academic doctrine maintains that a mandatory tender offer does not impose an obligation on shareholders to sell their shares; rather, it grants minority shareholders a unilateral exit right. According to this view, the mandatory tender offer must not amount to a disproportionate interference with the protection of property rights.[1]

The Legal Nature of the Mandatory Tender Offer

A mandatory tender offer does not arise from contractual freedom in the classical sense; instead, it constitutes a public-law-based regulatory obligation. In this respect, the offer represents an unavoidable duty for the offeror, while constituting an optional right for the shareholders.

Article 5/3 of Communiqué No. II-26.1 refers to “shareholders who respond to the tender offer,” thereby confirming the absence of any compulsory element on the part of shareholders. Furthermore, Article 11/6 of the Communiqué expressly prohibits the conditionalization of a mandatory tender offer.

The Concept of Control and the CMB’s Economic Reality Approach

Control is, as a rule, established through the acquisition of the majority of voting rights or the power to appoint most of the board of directors. In practice, however, preferred shares, shareholders’ agreements, indirect ownership structures and intra-group arrangements may render the assessment of control highly complex.

In its established practice, the CMB adopts an “economic reality” approach, focusing not merely on the formal legal structure of a transaction but on its substantive effects. Accordingly, arrangements that effectively confer decisive influence over management are considered. This approach is reflected in various CMB principle decisions and bulletins.[2] Academic commentary likewise emphasizes that the economic reality doctrine is indispensable, particularly in cases of indirect changes of control, to ensure effective investor protection.[3]

Distinguishing the Mandatory Tender Offer from Going-Private Transactions

In practice, the mandatory tender offer mechanism is frequently confused with going-private transactions. However, the two concepts differ fundamentally. While the mandatory tender offer grants shareholders an exit opportunity, a going-private transaction represents a further stage in which the shareholding structure is fully consolidated in favor of the controlling shareholder.

At this advanced stage, Communiqué No. II-27.3 on Squeeze-Out and Sell-Out Rights becomes applicable.

The Sell-Out Right and the Squeeze-Out Mechanism

Pursuant to Communiqué No. II-27.3, once a shareholder directly or indirectly reaches 98% of the voting rights, such shareholder acquires the status of controlling shareholder. This threshold corresponds to squeeze-out mechanisms recognized under European Union law.

Upon reaching this threshold, minority shareholders are granted a sell-out right, while the controlling shareholder acquires a squeeze-out right. The exercise of the sell-out right is subject to strict procedural requirements, including the preparation of a valuation report, compliance with forfeiture periods, and payment of consideration in accordance with the Communiqué. Academic doctrine emphasizes that the sell-out right must be interpreted considering property rights protection and the principle of fair compensation.[4]

Assessment in Light of Judicial Precedents

Although disputes concerning mandatory tender offers and squeeze-out mechanisms remain relatively limited in Turkish case law, the Court of Cassation has addressed these issues within the framework of property rights protection and the principle of good faith. The 11th Civil Chamber of the Court of Cassation has particularly underlined that minority shareholders’ rights must not be restricted in a disproportionate manner.[5]

Conclusion

The mandatory tender offer, sell-out right and squeeze-out mechanisms form integral components of a comprehensive investor-protection regime designed to balance competing interests arising from changes of control in publicly held companies. On the one hand, the system enables the acquiring shareholder to restructure the company’s ownership in a rational and predictable manner; on the other hand, it aims to safeguard minority shareholders’ property rights, investment expectations and economic interests.

The mandatory tender offer provides minority shareholders with a voluntary exit opportunity and does not constitute a direct interference with property rights. By contrast, once the 98% threshold is reached and squeeze-out mechanisms become operative, the impact on property rights becomes significantly more pronounced. Consequently, the determination of fair consideration, transparency of valuation processes and strict adherence to procedural safeguards assume critical importance.

The CMB’s economic reality approach constitutes an effective instrument for preventing circumvention of control-change rules and enhancing the effectiveness of the Communiqué provisions. However, to preserve legal certainty, this approach must be supported by consistent principle decisions and transparent enforcement practice. Particularly in cases of indirect control changes, a delicate balance must be maintained between investor protection and legal predictability.

In conclusion, the mandatory tender offer and the sell-out/squeeze-out regime provide a contemporary framework under Turkish capital markets law broadly aligned with EU standards. The sound functioning of these mechanisms depends not only on normative regulation but also on the consistency of CMB practice, the objectivity of valuation procedures and the effectiveness of judicial review. Continuous doctrinal and practical evaluation remains essential for ensuring confidence and stability in the capital markets.