Going Private: What Do Companies Need to Know?
What do you need to know when you are beginning to think about taking your company off the stock exchange?
We speak with Ali Ceylan, who discusses the process and considerations that need to be thought out, when going from public to private.
What are common reasons to why companies go private?
Besides a few reasons, such as having to go private as a pre-condition within a transaction of a sale (mergers, acquisitions), or keep being a target for speculators due to shallow trade volume of shares, I personally believe the main reason companies in Turkey want to go private is the vast load of procedures that companies are subject to by virtue of concerning regulations. When you add the narrow and strict interpretation of regulations by the Capital Markets Board of Turkey (“SPK”) on top of the procedures I mentioned, managing investor relations alongside the relation with SPK becomes costly and time consuming. There are many stories about companies that regret going public. Companies may be subject to administrative, civil and sometimes even criminal proceedings, for example, if the share value of a company decreases even though such loss may have a legitimate and reasonable explanation.
When is a company ready to go from being public, to private? What boxes must they tick?
The process of going private is governed by the Communique no II-27.2 about Squeeze-out and Sell-out Rights in Companies and the Communique no II-23.1 on Common Principles Regarding Material Transactions and Right to Sell-out. The public announcements, determining the purchase price, applications to the SPK and the Borsa Istanbul (Istanbul Stock Exchange) for required approvals, board resolutions need to be taken, gathering the general assembly meeting and securing the sufficient funds, are main actions and considerations that need to be considered before going to private.
Even though the company wants to go private, if 98% threshold cannot be reached, the majority shareholders may end up spending a certain amount of money, but not be able to have the company be delisted from the stock exchange.
What are the regulatory requirements involved in this process?
The share percentage threshold for turning a company from public into private is 98%. The offer made to the investors to buy their shares from a price (determined by the Communique) shall eventually allow the offering shareholder or shareholders making a joint offer (“Offering Shareholder”) to reach 98%. The share price is calculated by taking the arithmetic average of the weighted average price of the stock exchange within 30 days before the public disclosure of the transaction.
The decision of going private should be approved at the general assembly meeting of the company by the shareholders with voting rights. The approval decision requires affirmative votes of the majority of the attending shareholders if more than 50% the shareholders are present in the general assembly meeting. If less than 50% of the shareholders are present in the meeting, 2/3 of the attendees’ affirmative votes are required.
After the public announcement, the shareholders willing to exercise their sell-out rights have three months to apply to the company. The Offering Shareholder shall notify the shareholders that made such application that it is exercising its right to squeeze-out. Shareholders, who do not respond to the offer within three months, can still sell their shares within three years following the date of decision of the stock exchange as to delisting of shares. The total amount equal to the purchase price of shares of those who did not exercise their rights to sell out shall be deposited in a special interest-bearing blocked account to be opened at the Takasbank (Istanbul Clearing, Settlement and Custody Bank Inc.) in the name of the company. A bank guarantee letter may also be given rather than depositing cash.
There are many processes to be conducted and completing all such processes may be challenging.
The board of directors at the company shall take a resolution cancelling the shares of the squeezed-out shareholders, and issue new shares to replace these cancelled shares, and apply to the SPK for approval of the issuance of new shares and to the Istanbul Stock Exchange to be delisted.
Once the total amount is deposited by the Offering Shareholder to the company account, the company shall, on the next business day, go to the Istanbul MKK (Central Securities Depository Institution) to have the deposited money to be distributed to the shareholders who applied to sell their shares. After this process is over, Istanbul Stock Exchange confirms the company to be delisted.
What challenges often come your way when trying to undergoing the process of becoming private?
Even though the company wants to go private, if 98% threshold cannot be reached, the majority shareholders may end up spending a certain amount of money, but not be able to have the company be delisted from the stock exchange. Shareholders cannot be forced to sell their shares and they may want to keep being a shareholder in the company.
Furthermore, SPK is not inclined to have the companies delisted and also would like to ensure the protection of public shareholders’ interests. As I tried to explain briefly above, there are many processes to be conducted and completing all such processes may be challenging.
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“My name is Ali Ceylan and I am a partner at Baspinar & Partners Law Firm. Our firm has remarkable experience in real estate, litigation, corporate law, M&A, international arbitration, energy, privatization and intellectual property. Our mission is to create value for our clients. We are proud of the recognition we have received from our clients for our commitment to service, and we value their satisfaction as the best measure of our success. Our firm’s culture is characterized by teamwork, mutual respect and a commitment to excellence in everything we do. We believe in creativity and we do not solve problems merely by replicating historical methods, but also test alternative approaches and try to invent unique solutions.”