The new general principles regarding significant transactions and exit rights were initially introduced to the Turkish legislation via the Omnibus Law No. 7222 published in the Official Gazette dated 25 February 2020 and numbered 31050 (the “Omnibus Law”), by way of amending the Capital Markets Law No. 6362, which was published in the Official Gazette dated 20 December 2012 and numbered 28513 (the “CML“). With the amendments of Articles 23 and 24 of the CML via the Omnibus Law, it became necessary for the Capital Markets Board (the “Board”) to publish new ancillary legislation with regards to procedures and principles governing significant transactions and exit rights. Accordingly, the Board has prepared the Draft Communiqué on significant Transactions and Exit Rights No. II-23.3 (the “Draft Communiqué”) and presented it to the public’s opinion on 16 March 2020 through its official website. This Monthly Updates aims to provide brief information regarding the Draft Communiqué, specifically by means of comparing it with the current Communiqué on Significant Transactions and Exit Rights No. II-23.1 (the “Current Communiqué”), which the Draft Communiqué is expected to replace.
Changes Introduced by the Draft Communiqué
The Draft Communiqué introduces many important novelties. The major novelties implemented by the Draft Communiqué are summarized below under two general categories: (i) amendments regarding significant transactions and (ii) amendments regarding exit rights.
Amendments Regarding Significant Transactions
(a) Scope of Significant Transactions
As per Article 4 of the Draft Communiqué, the following transactions realized by public companies shall be considered as significant transactions; (i) being party to a merger or demerger as defined under Article 5 of the Draft Communiqué; (ii) changing their company type; (iii) transferring assets meeting the criterion determined under Article 6 of the Draft Communiqué (the “Significance Criterion”); (iv) establishing limited real rights in favour of third parties on their assets; and (v) creating privileges or changing the content or subject of existing privileges. In addition to the aforementioned transactions, the Current Communiqué lists many other transactions (such as changing fields of activities or acquiring or leasing substantial properties from related parties) as significant transactions; as such, the Draft Communiqué considerably narrows down the scope of significant transactions. However, as opposed to the Current Communiqué, the Draft Communiqué states that basic transactions with regards to the structure of a public company which may cause investors to change their investment decisions can be deemed as significant transactions by the Board.
(b) Significance Criterion Ratio
Pursuant to Article 6 of the Draft Communiqué, the Significance Criterion for asset transfers shall be met if one of the following ratios is equal to at least 75%; (i) the ratio of such asset’s book value to the company’s total assets as per its latest financial statements; (ii) the ratio of such transaction’s amount to the company’s value based on the daily mathematical weighted average prices on the exchange during the last six months; or (iii) the ratio of such asset’s contribution to the income of the company to the total income items on its latest annual financials. Although the Current Communiqué takes into account the same items to determine if the Significance Criterion is met, the Draft Communiqué considerably increases the ratio percentage, which is only 50% under the Current Communiqué.
An exception to the Significance Criterion ratio of 75% introduced by the Draft Communiqué exists for asset transfers realized by public companies which are not in the first or second tier companies as per the Communiqué on Corporate Governance No. II-17.1. Such companies’ Significance Criterion shall be met when one of the above-mentioned ratios reaches 50%, not 75%.
As per both the Current Communiqué and the Draft Communiqué, all significant transactions shall be approved by the company’s general assembly and shareholders who vote against such significant transaction shall be offered the right to sell their shares and exit the company (the “Exit Right”). However, under the Draft Communiqué, companies can decide that the shares of shareholders using their Exit Rights be offered to the other shareholders or investors before being purchased by the company itself. The Current Communiqué does not offer such option to companies.
Amendments Regarding the Exit Right
(a) Shareholders with an Exit Right
Under the Current Communiqué, all shareholders holding company shares as of the date of the general assembly during which the significant transaction is approved have an Exit Right. Differently, the Draft Communiqué states that only shareholders who hold shares in listed companies as of the earlier of the date on which; (i) the board of directors’ resolution regarding the significant transaction is disclosed to the public; or (ii) any other disclosure regarding the significant transaction is made to the public (the “Cut-Off Date”) shall have an Exit Right. As such, shareholders who become shareholders in the company after the Cut-Off Date shall not have an Exit Right. Furthermore, shares acquired by company shareholders after the Cut-Off Date shall also not be subject to the Exit Right.
(b) Price of the Shares Sold through the Exit Right
The CML as amended by the Omnibus Law states that the price of shares sold through the Exit Right shall be a fair price determined in accordance with principles defined by the Board. Accordingly, pursuant to the principles determined in the Draft Communiqué, the price to be paid in return for such shares of listed companies shall correspond to the average of the average weighted prices on the exchange in the six month, one year and five year periods prior to the Cut-Off Date. Moreover, if a mandatory takeover bid was realised in the year preceding the Cut-Off Date, the share price shall correspond to the higher of; (i) the price calculated in accordance with the aforementioned method; and (ii) the price determined in the evaluation report previously prepared within the scope of the mandatory takeover bid.
(c) Transactions Which Do Not Trigger an Exit Right
With the Draft Communiqué, the list of situations in which a significant transaction shall not trigger an Exit Right is narrowed down in some ways and widened in others; in other words, some new situations are added to the list, such as significant transactions related to the public offering of subsidiary shares, while some situations which do not trigger an Exit Right under the Current Communiqué are now subject to the Board’s exemption approval as per Article 16 of the Draft Communiqué. As such, some transactions which would currently not trigger an Exit Right, can trigger one under the Draft Communiqué if the Board does not exempt them on a case-by-case basis. For instance, this shall be the case for mergers to which a public company is party. The Draft Communiqué also lists many other situations in which a significant transaction can be exempted from triggering an Exit Right exclusively upon review by the Board.
The Draft Communiqué gives more flexibility to public companies, especially with regards to asset transfers, which now must meet a much higher ratio in order to be deemed significant transactions. Nevertheless, by letting the Board decide whether some significant transactions trigger an Exit Right on a case-by-case basis, the Draft Communiqué gives the Board the new possibility to assess significant transactions, thereby aiming to better safeguard shareholders’ rights and interests.