Following the entry into force of the Law No. 7222 Amending the Banking Law and Certain Laws which was previously published in the Official Gazette dated 25 February 2020 and numbered 31050, certain amendments have been made to the Capital Markets Law No. 6362 which was published in the Official Gazette dated 30 December 2012 and numbered 28513 (the “CML”). By virtue of such amendments, the Capital Markets Board (the “Board”) has started drafting the secondary legislation and recently published a new one, namely the Draft Communiqué on Squeeze-Out and Sell-Out Rights No. II-27.3 (the “Draft Communiqué”) and presented to the public consultation on 28 October 2020 via its official website. Following the entry into force of the Draft Communiqué, as may be amended, the Communiqué on Squeeze-Out and Sell-Out Rights No. II-27.2 (“Former Communiqué”) shall be repealed and the Draft Communiqué, as may be amended, shall prevail.
This Monthly Updates aims to provide a brief explanation on the Draft Communiqué and highlights the novelties introduced therein.
When Squeeze-Out and Sell-Out Rights are exercisable?
In accordance with the Draft Communiqué, a majority shareholder is defined as a shareholder holding 95% (formerly 98%, as detailed below) of the total voting rights of a public company. As is the case with the Former Communiqué, the Draft Communiqué provides majority shareholders with the right to squeeze-out the minority shareholders. Accordingly, the minority shareholders shall have sell-out right against the majority shareholders once the below explained conditions for the squeeze-out right are satisfied.
As stipulated above, considering the amendments made in the CML and the demands from the market, the Board set a new threshold for the percentage of voting rights that the majority shareholder shall hold in order to exercise their squeeze-out right. In this context, (i) contrary to previously determined threshold of 98% in the Former Communiqué, a shareholder who reaches at least %95 of the voting rights of a public company through a tender offer or otherwise; or (ii) a majority shareholder who already holds such threshold acquires additional shares shall have the right to squeeze-out the minority shareholders regardless of whether their shares are privileged. In other words, an existing majority shareholder can only use the squeeze-out right only if it acquires additional shares. Moreover, in the event that the squeeze-out right is exercisable, the sell-out right shall also be triggered. However, the squeeze-out and sell-out right shall not arise if the existing shareholders purchase such shares as a result of (i) capital increase through bonus issues; or (ii) capital increase through rights issues without restricting the rights of shareholders to purchase new shares.
For calculation of the ratio of voting rights and accordingly the threshold as stipulated under the Draft Communiqué, the shares that are directly or indirectly acquired by the majority shareholder shall be taken into consideration. Contrary to the Former Communiqué, privileges in voting rights and voting rights of persons who have usufruct or purchase rights over such shares will not be taken into account while calculating the ratio of voting rights.
Exercise of the Squeeze-Out and Sell-Out Rights
In the light of the explanations above, in the event that a shareholder becomes a majority shareholder, or an existing majority shareholder acquires additional shares, such shareholder shall be obliged to make special circumstances disclosures in the public disclosure platform. The process will be separately detailed below in terms of the sell-out right and squeeze-out right.
In this regard, as per the Former Communiqué the minority shareholders wishing to exercise their sell-out rights shall submit their written requests to the company within 3 months following the disclosure of the majority shareholder as detailed above (the “Period of Prescription”), this period was 2 months under the Former Communiqué. Moreover, the sell-out right shall be exercised for all shares of the relevant minority shareholder regardless of whether such shares are privileged.
In addition, even if the majority shareholder loses its controlling position in the company within the Period of Prescription, the sell-out right of the minority shareholder shall continue until the end of this period. Nevertheless, the majority shareholder shall not be able to purchase additional shares within the Period of Prescription, except for the purchases made due to the exercise of the sell-out right.
As per the Draft Communiqué, upon the receipt of the minority shareholders’ requests, the majority shareholder is required to deposit the share prices to the company’s account within 3 business days at the latest. The company shall then make the payment to the minority shareholders on the 2nd business day at the latest following the deposit of share prices and thus the share transfers shall be concluded. The above-mentioned periods as set forth in the Draft Communiqué is shorter compared to the Former Communiqué with the aim of accelerating the process.
On the other hand, the majority shareholder who wishes to exercise its squeeze-out right may exercise this right within 3 business days at the latest following the expiration of the Period of Prescription. In this context, upon the request of the majority shareholder, the board of directors of the company shall resolve on the cancellation of the shares of the minority shareholder that are subject to squeeze-out right and issue new shares. Accordingly, the company shall be required to apply to the Board to obtain approval for issuance of new shares. The companies whose shares are traded on stock exchange shall also be obliged to apply to the Central Securities Depository for the transfer of the share prices to the minority shareholders’ accounts, cancellation of the shares of the minority shareholders and transfer of the shares that will be newly issued to the majority shareholder.
Calculation of Share Price
In the event that the squeeze-out or the sell-out right is exercised, the share price shall be fully paid in cash and the payments shall be made in Turkish lira.
In the Draft Communiqué, the calculation of the share price in return for the exercise of the squeeze-out and the sell-out right differs whether such shares are traded on the stock exchange. Within the scope of the Draft Communiqué, the share prices for the companies listed in Yildiz Market shall be determined as the highest of either (i) average of the daily corrected average price for the last 1 month prior to the disclosure of the exercise of the squeeze-out and sell-out rights to the public (for the companies listed on other markets, such period shall be last 6 months); or (ii) the average value determined in the valuation report to be commissioned by the company. Similarly, the highest of the mandatory tender offer price, that will be determined in accordance with the mandatory tender offer regulations in case the acquisition of the majority shareholder status simultaneously leads to a change in management control, shall be taken into account while calculating the share price.
On the other hand, for the publicly held companies that are not traded on the stock exchange, the value determined in the valuation report to be commissioned by the company shall be the share price for the exercise of the sell-out and squeeze-out rights.
Nevertheless, the Draft Communiqué regulates that if there is any disclosure of the acquisition of the majority shareholder status or purchase of additional shares while holding such status prior the effective date of the Draft Communiqué, the share price shall be calculated as stipulated under the Former Communiqué.
Once the final version of the Draft Communiqué enters into force, it is expected to facilitate and accelerate the transactions regarding the exercise of the squeeze-out and sell-out right of the shareholders, since the periods have been shortened and the principles and procedures are explained in a more detailed manner within the Draft Communiqué in comparison with the Former Communiqué.