Corporate and M&A

Contact: Att. Nilay Celebi; Erdem & Erdem (Turkey)

“Material transactions” have become an important issue for companies subject to Capital Markets Law No: 6362 (“Law”). The Capital Markets Board has issued the Communiqué On Common Terms in Material Transactions and a Shareholder’s Right to Dissociate, II-23.1 (“Communiqué”) in order to clarify the scope of “material transactions” and the Communiqué was published in the Official Gazette dated 24 December 2013, No. 28861.

Material Transactions

Material transactions are defined in Article 5 of the Communiqué as follows:

1. Merger, spin off, change of type, cessation of the business,
2. Transfer or lease or creation of a right in rem over all or a substantial part of the assets,
3. Change of the scope of business (in whole or in part considered as substantial),
4. Creation of privileges or change of the scope or extension of the privileges,
5. Delisting,
6. Purchase or lease of a substantial part of the assets from the related parties,
7. In case of a capital increase, fulfillment of the responsibility of subscribing in cash by setting off the debts arising from the asset transfer, and
8. In case of a capital increase, if the funds exceed the existing capital of the company and if such funds will be used for the payment of debts, in whole or in part, owed to the related parties, defined in the relevant regulations of the Capital Markets Board, and which arise from non-cash asset transfers to the company.

The Capital Markets Board may consider representations and warranties given before becoming public, or transactions that may have a material effect on the business or commercial life of the company (even though no representations and warranties given before), as material transactions.

The board of directors’ resolutions regarding material transactions shall be announced to the public together with the value of the shares subject to the right to dissociate, and by stating the votes of independent directors.

For companies not traded on the stock exchange, it is not mandatory to announce the value of the shares subject to the right to dissociate.

Materiality

A. Regarding paragraph (b) above “b. Transfer or lease or creation of a right in rem over all or a substantial part of the assets”, transactions are considered material when:

1. the ratio between the value of the assets in question in the financial statements announced to the public to the total of the assets in the financial statements announced to the public shall be more than 50%, or
2. the ratio between the amount of the transaction to the value of the company based on the mathematical weighted average on a daily basis, 6 months prior to the date of the board of directors’ resolution shall be more than 50%, or
3. the ratio between the financial value of the asset contribution to be transferred (or leased or created a right in rem) to the income stated in the last financial statements and the income stated in the last financial statements shall be more than 50%.

B. Regarding paragraph (f) above “f. Purchase or lease of a substantial part of the assets from the related parties”, transactions are considered material when:

1. the ratio between the amount of the transaction and the value of the company based on the mathematical weighted average on a daily basis, 6 months prior to the date of the board of directors’ resolution shall be more than 50%,

C. The board of directors shall always determine the materiality for each transaction, even though the above-stated thresholds in paragraphs A and B are not reached.

D. Regarding paragraph (c) above “c. Change of the scope of business (in whole or in part considered as substantial)”, transactions are considered material when:

1. Amendment of the articles of association resulting in the main business being shifted to a side business of the company,
2. Decisions or transactions that may change the production procedures for the goods and services that constitute the main business of the company.

E. Public announcement of material transactions must include the board resolution on the decisions and the negotiations for the materiality and relevant criteria, as well as the calculation of the ratios.

General Assemblies Concerning the Material Transactions

Material transactions shall be submitted to the approval of the general assembly.

In the general assembly, unless an explicit higher quorum is stated in the articles of association, decisions relating to material transactions can be adopted by the positive votes of two-thirds of the shareholders present in the general assembly, which have voting rights. However, unless a higher quorum is stated in the articles of association, if at least half of the shareholders having voting rights are present in the meeting, the decisions can be adopted by the majority of the shareholders having voting rights present in the meeting. Provisions in the articles of association lowering such quorums shall be deemed invalid.

Shareholder’s Right to Dissociate

The shareholders or their representatives who attend the general assembly meeting on material transactions and record their dissenting votes to the minutes shall have the right to dissociate by selling their shares to the company.

A person who holds usufruct rights and exercises voting rights shall not have the right to dissociate. In such a case, the shareholders or their representatives shall attend the general assembly meeting regarding material transactions and record their dissenting vote to the minutes in order to exercise their right to dissociate.

The following shall be stated in the agenda of the general assembly meeting for material transactions: (i) shareholder’s right to dissociate who attend the general assembly meeting and record their dissenting vote to the minutes, (ii) the value of the shares subject to the right to dissociate, and (iii) the procedure of the exercise of such right.

The exercise of a shareholder’s right to dissociate shall commence within 6 business days (at most) starting from the date of the general assembly meeting. The period for the exercise of such right cannot be less than 10 business days and no more than 20 business days.

The shareholder’s right to dissociate can be exercised through an intermediary institution. The Capital Markets Board may grant an exemption to such rule for companies not traded on the stock exchange.

Shareholders who intend to exercise their right to dissociate shall deliver the shares to the intermediary institution, within the framework of the public disclosure regarding the procedure and in line with the general provisions, and thus the sale shall be completed. The share prices shall be paid to the shareholders who applied to the intermediary institution to exercise their right to dissociate on the business day following the sale, at the latest.

The shareholders, or their representatives, who attend the general assembly meeting regarding material transactions and record their dissenting vote to the minutes, shall maintain their voting rights on other issues stated in the agenda of the general assembly.

The shareholder’s right to dissociate can be exercised for the entirety of the shares, notwithstanding the group/class of such shares.

Value of the Shares Subject to the Right to Dissociate

For companies whose shares are traded on the stock exchange, the value of the shares subject to the right to dissociate shall be the average of the corrected weighted average prices within thirty days before the date of public disclosure of the transaction (excluding the date of disclosure).

For companies whose shares are not traded on the stock exchange, the value of the shares subject to the right to dissociate and the evaluation report which shall be prepared pursuant to the relevant regulations of the Capital Markets Board to determine whether such value is fair and reasonable, shall be disclosed to the public together with the agenda of the general assembly meeting in which the material transactions will be discussed.

If there is more than one announcement with regard to the material transactions, the date on which the plan/intent of the relevant proposed transaction is announced shall be taken into consideration.

Each material transaction shall be stated separately in the agenda and discussed separately in the general assembly. The value of the shares subject to the right to dissociate for each transaction shall be calculated and stated in the agenda. However, the higher value shall be taken into account for the shareholders who record their dissenting vote to the minute for more than one material transaction.

The value of the shares subject to the right to dissociate shall be paid in cash and at once.

Mandatory Call

Regarding the transactions described in paragraphs d., e. and g. above: “d. Creation of privileges or change of the scope or extension of the privileges”, “e. Delisting”, and “g. In the case of capital increase, fulfillment of the responsibility of subscribing in cash by setting off the debts arising from the asset transfer”, the real or legal persons who will benefit from such transactions shall call for the shares of the other shareholders. The calculation method for the value of the shares subject to the right to dissociate can be used herein.

The share purchase price shall be paid in cash and at once.

Transactions on Which No Right to Dissociate Arises

No right to dissociate shall arise for the material transactions described below:

1. Transactions mandatory under the applicable law,
2. Transactions by companies whose control belongs to a governmental authority,
3. Removal of all of the privileges of the shareholders free of charge, or limitation on privileges in terms and scope,
4. Amendment of the status of the investment funds, cessation of the status of such funds and change in privileges in this regard,
5. Transactions mandatory for takeover bids as a result of a material transaction, or transactions approved by the Board for volunteer takeover bids,
6. Spin off transactions that establish a new partnership in which the shareholding structure of the demerged company is kept; merger and spin off transactions in simplified form,
7. The fact that the transaction is made by judicial authorities in accordance with a judgment decided under the Enforcement and Bankruptcy Code or for the purposes of collection of a public claim, the immediate buy back of the assets subject to transaction through financial leasing; and asset transfer to issue a lease certificate, security based assets or a mortgage or warranted security.
8. Lease of assets in the portfolio of real estate investments trusts,
9. Forming rights in rem over the assets in the portfolio of real estate investment trusts in accordance with the Communique III-48.1 concerning real estate investment trusts,
10. Forming rights in rem over the assets of the companies consolidated in the financial statements in favor of such companies,
11. Subject to the approval by the Capital Markets Board, the transfer of assets having no economic value, which are evaluated so as to offset the capital loss in the independent audit report of companies who have lost at least half of their capital, pursuant to the financial statements prepared in accordance with the regulations of the Board.
12. Merger and liquidation transaction for a company which is established for that reason (merger and liquidation).

In the cases where no right to dissociate shall arise; except for the situations where a general assembly meeting is required, a board of directors’ resolution shall suffice. Where a general assembly meeting is required pursuant to the relevant regulations, a statement from the board of directors confirming that no right to dissociate shall arise for the relevant transaction shall be added to the agenda of the meeting.

In each case, the board of directors’ resolution adopted for the transactions stated herein shall be announced to the public together with the relevant information and documentation.

Conclusion

The Communiqué defines material transactions, and the rights and the principles of shareholders who recorded their dissenting vote on these transactions, and recorded their opposition to the minute, are defined and determined therein. The board of directors of listed companies must evaluate the materiality and necessity of the relevant transaction carefully, since the consequences of the execution of such transaction for the company are very important.