Capital Markets Board of Turkey (“CMB”) published the Communiqué on Significant Transactions and Right to Exit (II-23.3) in the Official Gazette dated 27 June 2020 and No. 31168 (“New Communiqué”) as the secondary legislation of the changes recently adapted to Article 23/1 and Article 24 of Capital Markets Law No. 6362. Upon publication of the New Communiqué, the predecessor Communiqué on Common Principles regarding Significant Transactions and Right to Exit (II-23.1) dated 24 December 2013 and No. 28861 (“Abolished Communiqué”) has been abrogated.
Some of the major amendments introduced with the Communiqué can be outlined as follows.
Scope of Significant Transactions
The scope of the “significant transactions” has been narrowed down and now, mergers and spin-off transactions (as described separately in the New Communiqué), introducing privileges or changing the scope of existing privileges, changing the company type, asset transfers or any transactions that result with asset transfers, establishing limited right in rem over company assets in favor of third parties and such other transactions of public company that impacts the investors’ decision-making has been defined as significant transactions.
The mergers and spin-off transactions that meet the significance criteria are defined and listed separately in the New Communiqué.
Transactions that were previously listed in the scope of significant transactions in the Abolished Communiqué, such as, de-listing from the exchange; acquisition or lease of assets, that have significance, from related parties; change of field of activity entirely or at significant level, are no more defined in the scope of significant transactions as per the New Communiqué.
Notwithstanding the above, CMB is authorized to determine any transaction that materially changes the public company’s main activity and ordinary course of business, though not listed under the Law and the New Communiqué, as a significant transaction and set forth the mandatory rules and principles that will be applicable to such transactions as well as the significance criteria, considering the characteristic of the public company.
Board of Directors’ Decision and General Assembly Approval
As it is also required in the Abolished Communiqué, with the New Communiqué, the Board of Directors (“BoD”) of the public company is obliged to pass a resolution with respect to the significant transaction where the terms of such transaction will be determined, which will also be disclosed to public in accordance with the CMB’s regulation on public disclosure of material events. Following that, this BoD resolution is required to be approved by the General Assembly as the significant transaction has a direct effect on shareholders’ rights. It is highlighted under the New Communiqué that even if the General Assembly authorizes the BoD to execute the significant transaction, General Assembly approval will still be needed.
Significance Criteria for Asset Transfers
In case of any transfer of company assets, any transactions that have the result of asset transfers or establishment of limited rights in rem upon such company assets in favor of third parties, if those assets’ value exceeds 75 % of the net asset value of the company as of the date of BoD resolution, this will be considered as a significant transaction based on the calculation method set out under the New Communiqué. Previously, this ratio was 50% in the Abolished Communiqué.
It should be noted that if the free-floating shares of the public company is more than 50% of the share capital of the company, significance criteria will apply from over 50%, rather than 75%. Also, if any asset transfer of such company results with the company’s change of field of activity entirely, irrespective of the ratio above, this will be deemed a significant transaction.
Exercise of the Right to Exit
The shareholder that attends the General Assembly with the agenda of significant transactions and gives a dissenting vote for the respective significant transaction, is entitled to exercise its right to exit and sell its shares to the company. The shareholder is obliged to exercise such right only through brokerage firms.
With the New Communiqué, the public company may pass a BoD resolution and decide to initially offer the shares of the shareholder(s) exiting the company, to other remaining shareholders or third party investors before these are purchased by the public company itself. This is entirely a new practice introduced to the Law and New Communiqué.
As also stated in the Abolished Communiqué, if a shareholder or its proxy is unjustly prevented from attending and voting in a general assembly meeting regarding significant transactions or the invitation to the general assembly meeting is not duly made or the agenda is not duly announced, such shareholder is still entitled to exercise its right to exit without any requirement to give a dissenting vote for the respective significant transaction in the meeting.
The shareholder, who is holding shares as of either the public disclosure date of the BoD resolution regarding significant transaction or any public disclosure date of such significant transaction, is eligible to exercise its right to exit.
Exit Price of Shares
When the shareholder exercises its right of exit, public company, whose shares are listed in the exchange, is obliged to purchase the shares of the shareholder based on fair price criteria. Therefore, the exit price of such public company shares i) if listed in BIST Star Market; shall be arithmetic average of the daily adjusted weighted prices in the exchange within the last 1 (one) month before the BoD date, or ii) if listed in other markets; shall be arithmetic average of the daily adjusted weighted prices in the exchange in the last 6 (six) months before the BoD date. Previously, public company was obliged to purchase the shares based on a pricing method imposed in the Abolished Communiqué.
For the public companies that are not listed in the exchange, the exit price of shares shall be calculated through a valuation report, which relies on the share price of the public company as of the BoD resolution date.
Exemptions and Cases Not Triggering the Right to Exit
In the Abolished Communiqué, the cases that do not trigger shareholder’s right to exit has been listed such as merger and demerger transactions in simplified form; removal of shareholder’s privileges; amendment of status of investment trusts. In addition to the existing cases, New Communiqué has introduced new cases that do not trigger shareholder’s right to exit the public company which are; rescue mergers and sale of affiliate shares via public offering.
As it is also stated in the Abolished Communiqué, with respect to the cases that do not trigger the right to exit, for the significant transactions, public company needs to pass a BoD resolution; however, General Assembly meeting is not needed.
With the New Communiqué, significant transactions that may be exempted from the obligation of exercising the shareholder’s exit right are listed, such as, offering voluntary tender offers; cessation/limitation of privileges; significant transactions executed as relief from company’s financial difficulty. Having said this, CMB is now authorized to decide whether or not such significant transaction shall be exempt from the exercise of shareholder’s right to exit or not. It is also clearly set forth that the public company, if applies for an exemption due to its financial difficulty, is required to submit to the CMB an independent assurance report obtained from an eligible independent audit firm which proves the financial difficulty of the company and the positive impact of the significant transaction over such company’s financial condition.
The New Communiqué clarifies that significant transactions that are disclosed to public before the New Communiqué has come into force, are still subject to the terms of the Abolished Communiqué in line with the amendments adapted to the Law. For the significant transactions of the public companies listed on exchange that are disclosed to public before the New Communiqué has come into force, the following dates will be taken as basis to determine the shareholders and their share amounts for exercising the right to exit.
i. 25 February 2020; for the significant transactions that are disclosed to public before 25 February 2020,
ii. Public disclosure date; for the transactions that are disclosed to public on a date between 25 February 2020 and 27 June 2020, when this New Communiqué has come into force.
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 Article 23 (Significant Transactions of Public Company) and Article 24 (Right to Exit) of Capital Markets Law of Turkey No. 6362 has been amended through Law No. 7222 published in the Official Gazette dated 25 February 2020 and No. 31050. You may find our publication on this matter at https://www.sadik-sadik.com/recent-changes-to-capital-markets-law-no-6362-through-law-no-7222/.