Preparation By The Capital Market Board Of A New Draft Regarding Takeover Bids

In April, the Capital Market Board (CMB) opened discussion on the first Communiqué draft to regulate principles regarding takeover bids of publicly-held companies by amending the Communiqué on Principles Regarding Proxy Voting at Shareholders’ Meetings of Publicly-Held Joint Stock Corporations, Proxy Solicitation and Takeover Bids . The second draft, which incorporated comments made on the first draft, was opened to discussion in June.

The Communiqué draft regulates the principles and procedures concerning mandatory and voluntary bids made to shareholders of publicly-held joint stock corporations. The draft Communiqué provides for all shareholders in the same group of a company to be treated in a non-discriminatory manner, and requires a bid to protect all shareholders’ rights. This includes the rights of other shareholder groups in the corporation in the case persons, alone or together with cooperative parties, gain management control. The bid price has to be paid in TL and in cash.

The draft defines “management control” as belonging to those individuals who own, alone or together with cooperative parties, 50% or more of the capital and voting rights of a corporation, directly or indirectly; or to those who own less than 50% but own shares granting the right to elect the majority of board members or to nominate members for the concerned number of members in the general assembly.

It is foreseen that the rate of 25% for mandatory bids on publicly-held joint stock corporations will increase to 50% in the new Communiqué.

The draft also states that “to have the power to block the decision-making process in determined and specific subjects” will no longer be considered acquisition of management control.

The draft settled a mandatory bid for the acquisition of shares of other shareholders for individuals who directly or indirectly own, alone or together with cooperative parties, 50% or more of the capital and voting rights of a corporation, by way of voluntary partial bid, block or individual purchases, or any other method;,or for those who own less than 50% but own shares granting management control.

Within 5 business days following the achievement of the abovementioned rates or the acquisition of the shares and voting rights granting management control, it shall be applied to the CMB for bid. According to the new regulation, the corporation shall start the de facto bid in order to acquire its other shareholders’ shares within 30 business days of the mandatory bid. The time period for the de facto bid is 10 to 20 business days. The de facto bid shall start within maximum 6 business days of the approval by the CMB.

In the draft, the determination of the bid price, the principles related to voluntary bid, and the exemption conditions from mandatory bid are re-regulated.

The CMB may impose exemptions for a mandatory bid in the case the acquisition of shares and voting rights of the corporation is due to a necessary change in capital or management structure in order to strengthen the financial structure of the corporation, and if acquisition of shares and voting rights happens within the group controlled by the same individual or corporation.

Exemptions for the mandatory bid may also be imposed in the case of “transfer or engagement to transfer, within the maximum period determined by the CMB, the part of the shares and voting rights owned in the corporation capital which require mandatory bid” and in the case of“transfer of shares causing a change in the management control of the corporation and subjecting the corporation which has the management control to mandatory bid although this change does not aim the acquisition of the control”.

The CMB may impose exemption for the sale of public shares and the sale of shares in the possession of the Investor Protection Fund if they cause the mandatory bid for corporations in the process of privatization.

Applications for exemption shall be made within 5 days following the emergence of the mandatory bid obligation to the CMB.

The draft regulates voluntary bids as follows: the shareholders or third persons may bid for all shares or only a part of them. Bids on only a part of shares will be subject to the proportional distribution method to avoid disparity between the bidding shareholders in case the shares for which offers are made to participate in the bid are more than the shares subject to the offer.

The purchase period in a voluntary bid is 10 to 20 business days. The de facto bid shall start within 6 business days of the relevant CMB decision.

* Communiqué Serial IV, No.8 published in the Official Gazette dated 9/3/1994 and numbered 21872