Turkey should align its laws with that of its European counterpar

Turkey should align its laws with that of its European counterparts, and particularly the European Directives on Takeover Bids

A recent study prepared by Gide Loyrette Nouel, an international law firm, and published by EBRD in May 2009 discusses that capital markets regulations as well as justice system in the context of mandatory tender offer are still not sufficient to deliver rights and justice.

Capital Markets Board has the regulatory responsibility to protect shareholders of publicly traded companies in Turkey. Indirect acquisitions are not expressly regulated under the CMB regulations. However the CMB has adopted a practice in indirect acquisitions of calculating the offer price based on the weighted average exchange trading price of the shares of the listed subsidiary for the three-month period before the date of the acquisition triggering the tender offer.”

Here is a significant example from the study published by EBRD to show how regulations are lacking to guide market participants.

Finansbank in April 2006 officially announced that National Bank of Greece signed agreement to purchase a 46% stake in Turkey's Finansbank from Fiba Holding and Fiba Group companies for US$2.8 billion (€2.3 billion).

With its decision dated December 6, 2006, the CMB approved the mandatory tender offer price proposed by the acquirer which had been calculated based on a weighted average of the subsidiary’s stock price during the three months preceding the change of control over the target. However this calculated mandatory tender offer price was lower than the actual trading price on the date of the CMB’s approval.

In relation to the acquisition of Finansbank by the National Bank of Greece one of the shareholders of the listed company of Finansbank, Finansal Kiralama A.S., namely East Capital Asset Management challenged the decision of the CMB claiming that the offer price should not be less than the trading price of the shares.

The Administrative Court reviewing the matter ruled for the claimant shareholders, cancelling the CMB decision approving the tender offer with immediate effect at May 16, 2008. The CMB initially appealed the ruling of the Administrative Court thereafter adopted a second decision requiring the purchaser, National Bank of Greece, to apply to the CMB for a second tender offer and provide with this application the calculation on the shares of the listed subsidiary. The purchaser, the National Bank of Greece, provided the valuation for the shares, but challenged the CMB decision requiring a second tender offer to be launched by filing an administrative lawsuit on the grounds, among others, that the tender offer was already completed. So to say litigation path is a long and burdensome one for the minority shareholders with no guaranteed time frame and outcome.

Market participants are still waiting draft CMB communiqué prepared in April 2009 to be valid for further clarification.

As study concludes it is time for Turkey to revisit and improve the protection of minority shareholders’ rights in the context of mandatory tender offer rules. In so doing, Turkey should also align its laws with that of its European counterparts, and particularly the European Directives on Takeover Bids, in line with its commitment to adopt the European Union’s acquis communautaire.

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