Ceyda Ceylan Uygun

Senior Attorney

19.12.2023

Obligation to Make a Tender Offer in Capital Markets Law

Obligation to Make a Tender Offer in Capital Markets Law

Mandatory Tender Offer

Where shares or voting rights are acquired in a way to bring about change of control of the company, the acquirer (transferee) is obliged to make an offer to the other shareholders to purchase their shares. In the Turkish legal system, the obligation to make a tender offer was introduced with Article 16/A added to the Capital Markets Law No. 2499. The current version of the CML No. 6362 regulates the tender offer and related obligation in Articles 25 and 26. In addition, the Capital Markets Board's Tender Offer Communiqué  numbered II-26.1, which entered into force on 23 January 2014 and amended on 16 October 2021, also stands as secondary legislation. There are different definitions in the doctrine.

Doctrinal Opinions on Mandatory Tender Offers

Kendigelen states that it refers to "the obligation of those who acquire such percentage of shares in a publicly traded joint stock company  that will lead to a change of managerial control to make a public share purchase offer to the holders of these shares in order to purchase other shares. [1]

According to Yeşiltepe, a mandatory tender offer denotes "the obligation of the tender offeror, in consequence of them taking control of the management of the target company, to make a second call to all shareholders of the target company that involves the same terms and conditions, providing that  a fair price is paid to all shareholders of the target company.[2]

According to Paslı, a mandatory tender offer refers to "the obligation of the person who takes control of a publicly traded joint stock company to make a public/general offer/invitation after the transfer  to purchase the shares of the target company shareholders who are excluded from the takeover transaction"[3]

Kolcuoğlu defines a mandatory tender offer as "the obligation of those who, by any means, directly or indirectly acquire such percentage of shares in a publicly traded company to secure control of the management of the company, to make a call for the purchase of the shares of other shareholders outside the management of the company in question”.[4]

Dinç, on the other hand, states that a mandatory tender offer can be defined as "an obligation imposed on the person or company being in the position of  offeror or on persons acting in concert with them, following their acquisition of  a certain percentage of the shares of a listed company, to collect the other shares in the target company".[5]

Defining Management Control In Terms of Mandatory Tender Offer

We observe that the CML and the Communiqué codify the circumstances under which the obligation to make a mandatory tender offer arises, rather than the definition of the mandatory tender offer. 

CML and the Communiqué do not include definition of management control. Management control can be defined as having a decisive say in the board of directors of the target company. The CML prefers to enumerate limited circumstances (numerus claususus)  in which management control is acquired.

Pursuant to Article 26/2 of the CML, "the direct or indirect ownership of more than fifty percent of the voting rights of the company, either alone or together with persons acting in concert, or the ownership of privileged shares that give the right to elect the absolute majority of the number of members of the board of directors or to nominate candidates for the said number of memberships in the general assembly, shall be deemed as the acquisition of management control."

The concept of "management control" within the meaning of the preceding provision is considered to be materialized by:

i) holding, directly or indirectly, more than fifty percent of the voting rights of the company, either alone or together with persons acting in concert;

ii) holding privileged shares that give the right to elect the absolute majority of the number of board members;

iii) holding privileged shares that give the right to nominate candidates for the said number of memberships in the general assembly.

The Issue of Limiting the Scope of Shareholders

In the process of discharging tender offer obligation arising from a change in management control, a natural conflict arises between the interests of the obligor and the interests of the minority shareholders who will benefit from the tender offer. This may lead to an increase in the cost of discharging the tender offer obligation for those who acquire shares above the controlling percentage in order to obtain management control. 

On the other hand, shareholders who want to benefit from the tender offer may want to sell their shares at a higher price by evaluating the price volatility. Because the tender offer price is usually determined according to the control premium paid by the controlling party during a change of control, it may be higher than the stock exchange price. This may cause significant volatility in the trading volume and price of the shares, or even a further increase. Those who acquire shares in this process may be existing minority shareholders, as well as individuals who only want to benefit from the tender offer and who were not previously shareholders. A compromise must be reached between the interests of these persons and the interests of the obligor of the tender offer. 

One of the problems that need to be solved on this matter is to draw the framework of the shareholders who may benefit from the tender offer obligation. Basically, two possibilities can be considered in solving this problem. 

(i)         First, all shareholders existing at the date of the tender offer may be given the opportunity to benefit from the tender offer, regardless of the date of acquisition. 

(ii)        Secondly, it may be assumed that the offer will only apply to those who were shareholders on the date of the change of control. In such a case, not only those who were not shareholders before the change of control, but also the shares to be purchased after that date by those who were shareholders before the change of control took place would be outside the scope of the offer.

It should be straight noted that for determining which shareholders should be included in the scope of the tender offer obligation and whether the shares acquired before or after this moment should be included in the calculation, the moment of change of control should be determined, and in exceptional cases where the tender offer obligation arises independently of the share acquisition, the shareholders who will benefit from the offer should be established.

Approaches to Solving the Problem

Approaches to the solution of the problem exact taking the purpose and nature of the mandatory tender offer obligation into consideration. The mandatory tender offer regulation, the main purpose of which is to protect minority shareholders, reads in Article 16/A of the Former CML No. 2499 as "in an attempt to collect shares by making a call to the shareholders in order to secure control of the capital and management of public joint stock companies...". The Board shall make regulations for the protection of small shareholders...". This provision of the legislator emphasizes the need to protect small shareholders.

Another reason for the mandatory tender offer is to implement the principle of equal treatment. Article 5 of the Communiqué prescribes  that "In a tender offer, all shares belonging to the same group representing the capital of the target company shall be subject to equal treatment." The principle of equal treatment is particularly effective in mandatory tender offers.

The principle of equal treatment in mandatory tender offers comprises benefiting from the control premium[6] and  ensures that no diversity between shareholders in case of shareholders’ exit is created. This principle is bi-directional, i.e., there should be no discrimination between shareholders who sell shares that provide management control and other shareholders who do not control the company. This principle, which includes equality of price and opportunity, aims to ensure that shareholders are not pressured and are subject to equal conditions[7] . The granting of a control premium to all shareholders is an extension of equality of opportunity[8] .

According to a view first advocated by Kendigelen and later adopted by Kolcuoğlu, Paslı and Karacan, the addressees of the tender offer obligation are the shareholders who are already present in the company at the time the obligation arises, that is, at the time of the share transfer that leads to the change of management control in the company. The keystone of this view is that the purpose of the tender offer obligation is to grant the shareholders the right to exit, and that no one who becomes a shareholder after the change of control has occurred has an interest worth protecting. This view on  the purpose of the obligation to make a tender offer emanates from the approach of collapse of the underlying transaction.

The Communiqué attaches importance to ensuring legal certainty, and consequently, it is concluded that a public disclosure of the date of legal passage of ownership should be made but the  share acquisitions after this date will not be eligible for the offer. Accordingly, as per legal certainty principle, persons who acquire shares during the period until the date of legal completion of the change of control  and public disclosure thereof will be able to benefit from the offer. 

Exceptional Circumstances Where Date of Public Disclosure of the Change in Management Control Cannot Be Grounded On

As a rule, the obligation to make a tender offer regardless of the acquisition of shares will arise in the exceptional circumstances set forth in paragraph 26/3 of the CML. 

Accordingly, even when there is no change in the shareholding of the company, the obligation to make a tender offer also arises if shareholders take control of the management through special written agreements between themselves. However, we should note it is also ruled that the obligation to make a tender offer  shall not transpire if the agreement between the parties cited in this paragraph is submitted to the general assembly for approval and the shareholders who cast dissenting votes in this general assembly meeting are granted the right to exit. 

Therefore, emerging of tender offer obligation  in case of acquisition of management control by the shareholders through special written agreements among themselves is conditional upon either the absence of a general assembly meeting in this regard being held or non-approval of  foregoing agreement by the majority of the other shareholders in the general assembly meeting due to the freezing of the voting rights of the shareholders who are party thereto pursuant to Article 436 of the Turkish Commercial Code. In such cases, pursuant to subparagraph 11/3-b of the Communiqué, the date of public disclosure of the special written agreement between the shareholders relating to acquisition of the control of the management of the company shall be taken as a basis.

Except for the special situation specified in paragraph 26/3 of the CML, even if there is no change in the shareholding of the company, the acquisition of management control by way of special written agreements between the shareholders may bring about the obligation to make a tender offer. However, in this case, if the parties to the agreement secure approval for holding the general assembly and such approval is not given by the majority of the other shareholders at the general assembly meeting due to the freezing of the voting rights of the shareholders who are parties to the agreement pursuant to Article 436 of the Turkish Commercial Code, no obligation to make a tender offer shall  emerge.  The situations such obligation arises are where the general assembly meeting is not held or the agreement is not accepted. In such cases, according to subparagraph 11/3-b of the Communiqué, the date of public disclosure of the private written agreement to take control of the management of the company is taken as a basis.

Exemption from the Obligation to Make a Tender Offer

In the presence of certain conditions specified in the Communiqué, the Board may grant exemption from the obligation to make a tender offer. Exemption is granted upon request, and if the Board concludes that the exemption conditions stipulated in the Communiqué are met, the relevant persons may be exempted from the obligation to make a tender offer. The following matters are included in the scope of exemption:

·       Capital structure changes required to strengthen the deteriorating financial structure;
·       Disposal of or undertaking to dispose of the portion of the shares held in the share capital of the company that is subject to the requirement to make a tender offer;
·       The change in control in the parent company is not intended to obtain control of the management of the publicly traded company;
·       Sale of public shares in partnerships within the scope of privatization;
·       Change in management control arising from the merger transaction to which the merging entity is a party as a transferee;
·       The shares pledged to the bank as collateral for the loan are transferred to the ownership of the bank, transferred to a special purpose entity of which the bank is a founder, and purchased by third parties after these transactions;
·       Transfer of shares in order to fulfill a regulatory provision that determines the nature of share ownership;
·       The acquisition of shares leading to the acquisition of management control stems  from inheritance, division of inheritance, property regime provisions between spouses or legal obligations.


[1] Abuzer Kendigelen, "Recent Developments Regarding Mandatory Call".
[2] Salih Önder Yeşiltepe, Collecting Equity Interests through a Call in EU and Turkish Law, Istanbul: Title XII, 2011, p.58.
[3] Ali Paslı, The Takeover of a Joint Stock Company, Istanbul: Vedat Kitapçılık, 2009, p.406.
[4] Umut Kolcuoğlu, Mandatory Call in Capital Markets Law, Istanbul: Vedat Kitapçılık, 2009, p.7.
[5] İlhan Dinç, Capital Markets Law, Call for Share Certificates, Istanbul: Legal, 2006, p.228.
[6] A Control Premium is a payment above the current market value of the shares to acquire shares that provide management control.
[7] Manavgat, Public Tender Offer, p.254.
[8] Şükrü Yıldız, Equal Treatment Principle for Shareholders in Joint Stock Companies, p.97.