Draft Communiqué on Material Transactions and Exit Right Published by the Capital Markets Board
Following the amendments to Articles 23 and 24 of the Capital Markets Law No. 6362 (“CML”) relating to material transactions and exit right, Capital Markets Board of Turkey (“CMB”) has announced that a new communiqué regulating the same will be issued. Accordingly, CMB has published the Draft Communiqué on Material Transactions and Exit Right (“Draft Communiqué”) and accepted public opinion on the Draft Communiqué.
Some of the main novelties introduced by the Draft Communiqué are as follows:
In accordance with the amendments to Article 24 of the CML and introduction of the fair price concept, the Draft Communiqué regulates the details of the calculation of the fair price to be applied as the exit right price. Exit price will be set as the highest of (i) the average of the aggregated average stock exchange price within the six months, one year and five years before the date of disclosure of the transaction to the public, (ii) the price of the mandatory tender offer (“MTO”) conducted within one year prior to the date of such public disclosure (if any), and (iii) the prices for each group of shares determined in a valuation report.
One of the most significant changes to be introduced with the Draft Communiqué is that the list of material transactions is limited and ‘fundamental transactions relating to the structure of the company which may result in changes to the investors’ decisions’ as a general matter is kept to cover events which may be considered by the CMB as a material transaction. The Current Material Transactions Communiqué (“Current Communiqué”) already provides that the transactions causing significant changes with regard to the company’s activities or business might be considered as material transaction by the CMB. However, the criterion presented by the Draft Communiqué, which is the same criterion stated in the CML appears to be broader.
Another significant change to be presented by the Draft Communiqué is that, differently from the Current Communiqué, none of the material transactions is regulated to directly trigger an MTO for a specified party instead of an exit right as regulated under the Current Communiqué. Instead, the CMB has the discretion to decide that a party directly benefiting from the material transaction triggering an exit right shall conduct an MTO instead of the exit right.
In accordance with the amendments to Article 24 of the CML, the Draft Communiqué limits the shares which may be subject to exit rights by providing that the shares held at the time of (i) the public disclosure of the board resolution regarding the material transaction or (ii) any kind of public disclosure made by the publicly held company or its representatives may be subject to the exit right. In case the shareholders, holding the shares on the above-mentioned dates, have sold their shares after such dates, the shares that are sold by the shareholder will no longer be sold by way of exercise of exit rights.
Publicly held companies will now be granted with a new option, which was not a part of the applicable legislation prior to the amendments to the CML, to offer the shares to other shareholders or investors that are willing to acquire the shares by adopting a board decision before the application of exit right as per the Draft Communiqué.
In addition to the situations where the exit right does not arise, exemptions from exit right are introduced under the Draft Communiqué as a new concept in line with the amendments to Article 24 of the CML. The exemption conditions listed under the Draft Communiqué are as follows;
i. the cases where a voluntary tender offer is requested in connection with the material transaction, or the material transaction separately triggers an MTO under CMB regulations, provided that the tender offer price is not less than the exit right price, and where the CMB approves such tender offer,
ii. removal of the privileges with no consideration or limitation of the same,
iii. the transactions carried out by the company to overcome the financial difficulties,
iv. the transactions deemed as material transaction on the basis of establishment of limited rights in rem and where the company derives financial benefit in consideration of the same,
v. mergers and dissolutions to which the merger companies, as defined in the Communiqué on Mergers and Demergers No. II-23.2, are party
vi. transactions deemed as material transaction on the basis of transferring property, resulting in transfer of property or establishment of limited rights in rem that are carried out by the company with its subsidiary,
vii. conditions where a material transaction is realized by (i) a company jointly controlled by an entity together with a public institution or (ii) a company in which a public institution holds privileged share.
The CMB will evaluate the comments received from the public on the Draft Communiqué and will finalise the legislation in the coming days.