Notes on the Merger
Although I take notes for myself on many aspects of life and share some of them via this blog, I prefer to keep company and stock analyses for myself – unless they have educational purposes or there is a common interest on the issue. For example, I have previously written on Migros to contribute on how to conduct a financial analysis and on Starbucks to understand negative owner’s equity.
As the Türkiye Şişe ve Cam Fabrikaları A.Ş. provided us with more information on the merger on April 28th, 2020 through a webcast, I wanted to pass my notes about the process from the beginning, which also includes a possible timeline for the future, with everyone who has interest on the subject.
First things first: I am an individual investor with a quiet insignificant share (for the market) on the Soda Sanayii A.Ş., and among the companies that I have examined, Soda has one of the best fundamental qualities based on balance sheet, financial strength and future prospects. Therefore I am deeply disappointed with the merger announcement, but I respect the decision and will just summarise the developments on the issue objectively. So let’s start with the company profile.
Sisecam Group, which was founded in 1935 by İş Bank, is among the world’s most prestigious manufacturers and with its more than 80 years of corporate history, the Group has a considerable experience and high degree of specialisation. Setting aside all the other peculiarities, even only these assets give the company a considerable competitive advantage on the market.
With respect to Group’s operational activities we can count five branches and many companies under this umbrella with different status. These branches are; Flat Glass, Glassware, Glass Packing, Chemicals, and Others. The companies, which represent these branches and quoted to Borsa Istanbul A.Ş. except Paşabahçe Cam Sanayii ve Ticaret A.Ş., are as following:
On January 30th, 2020, the Group has announced the beginning of merger talks, with the ideas of cost optimising, creation of synergy, improvement in governance, etc. According to primary calculations, with an increase of 814 million TL, the Sisecam will reach a total capital share of 3.064 million TL. In addition to that İş Bank’s share will fall to 51% and free float will hit the c.43%, with a 21 percentage point increase.
The Group engaged PwC for preparation of Expert Valuation Report and as the Report finalised, conversation rates were disclosed in the webcast. Meanwhile a formal application was also submitted to the Capital Markets Board of Turkey (CMB) on April 27th. CMB’s decision is anticipated on the merger in the first half of the July and following that, extraordinary general assembly meetings will be held in the end of August. You can see these steps on the timeline below.
Now let us dwell on the calculations a little bit.
There are two values to consider. The first is Exit Price and the latter is Conversation Rate. Stock holders of the above mentioned companies have a right to exit, if they do not wish their shares to be replaced by the SISE stocks. Based on the current legislation, exit price is calculated through average prices of a stock within the last 30 days, backwards from the announcement of the merger. And that is called fair value. As there is also dividends paid or will be paid for the year 2019, the exit prices should be adjusted accordingly and disclosed to the public. Two other things to keep in mind are; this right exists only for the stock holders who acquired them before the 30/01/2020 with the condition of registering their claims at the general assembly meeting.
For the conversation rates, the Group has stated that four methods have been utilised in total share value calculations and those methods have been weighted differently. For the sake of simplicity I have just taken the rates from the document, but you can view the presentation and other reports from the Group’s official website.
As you have seen, the issue is pretty complicated, but I tried to explain the details in a nutshell. During the fold of events, there was a change on Banking Law, which was published on Official Gazette on February 25, that regulates the exit rights. According to Article 26 of that law, anyone who owns the stock at the day of merger announcement is entitled to use the exit right with annotation at the General Assembly. After that CMB has also published a Draft Communiqué on Significant Transactions and Right to Exit on March 16th, 2020 and announced it at its own website. Draft set the frame for exit right and mergers. So the February 25 criterion comes from there.
However, this is a draft and we are not sure how it will be adapted. But one thing is clear, any changes on that should also be reflected to the merger. From the current regulation point, January 30th is the announcement date and therefore binding. Besides there are plenty of unhappy investors who do not find the conversation rates satisfactory, and might appeal to protect their rights. So even very little, there is a possibility of failure on merger. We will wait and observe the developments closely.
In this regard, there are various strategies to follow. Everybody has a different risk and return preferences, so I am not suggesting you to choose one, but just counting them. These strategies for the stock holders, who acquired them before 30/01/2020 are:
1 – To sell them all and not to worry about the merger.
2 – To keep the stocks and convert them to SISE with the given ratios.
3 – To keep the stocks and use the exit right with the determined price.
4 – To keep the stocks, appeal for a rejection, and wait the consequences.
There is also a tactical play for everyone: As the conversation rates are revealed, there is a peg between stocks. So you can buy more stocks and trade with the possible arbitrage chances. But keep in mind that, we can not know which direction the prices will go. So it is better you council to your financial advisor for such crucial decisions. These are just my notes and links for official sources of information.
I wish you a pleasant day.
Ergun UNUTMAZ, 01.05.2020
Update on the Merger (29.06.2020)
As I have previously stated on the Notes section of this page, the Capital Markets Board of Turkey (CMB) has published on March 16th, 2020 a Draft Communiqué on Significant Transactions and Right to Exit. This Draft has been negotiated at the parliament and the Communiqué published on Official Gazette on June 27, which also sets the date for the Communiqué to enter into force.
In this update I will briefly introduce the Communique and try to analyse its effect on Şişecam Merger.
Communiqué comprises of six chapters:
1 – Purpose, Scope, Legal Basis, and Definitions
2 – Significant Transactions and Criteria on Significance
3 – Principals on the Realisation of Significant Transactions
4 – Exit Right and Process of Usage
5 – Cases in which Exit Right does not come to being and Exemptions
6 – Various and Final Provisions
Although it must be read and applied as a whole, I will simply concentrate here on the fourth chapter on the Şişecam Merger.
Interim article states that, significant transactions, which are announced before this Communiqué entered into force, will be executed based on the previous Communiqué. However, the eligible shareholders and share amounts for the Exit Right will be determined with the pivotal 25/02/2020 date, on which a change on Banking Law adopted and published on the Official Gazette.
As the Şişecam Merger announced to the public on 30/01/2020, this article leads us to the conclusion that, whoever had the shares of relevant Merger companies on 25/02/2020 are entitled to use the Exit Right. This was the first important point in the merger.
Second issue was determination of the exit price and Communiqué set the rule by eleventh article. Announcement date of the merger decision to the public sets the benchmark. As the Şişecam companies are listed under BIST Star Group-I, fair price will be calculated with the last 30 day adjusted-average price in the market backwards from 30/01/2020.
As I still hold my shares on Soda Sanayii A.Ş. I will keep on reporting the developments as they unfold.
Ergun UNUTMAZ, 29.06.2020
Update on the Merger (16.07.2020)
As the Communiqué published and entered into force on Official Gazette on June 27, text of amendment regarding to the merger has became a necessity. On 14.07.2020 Şişecam Group presented revised documents to the Public Disclosure Platform.
There is no change in conversation rates but exit right prices have been adjusted after the dividend payments as in the following table.
For disclosure: I still hold my shares on Soda Sanayii A.Ş. I will keep on reporting the developments as they unfold.
Update on the Merger (23.07.2020)
Following the legislative developments and amendments on regarding documents, decision of the Capital Markets Board of Turkey (CMB) was next step on the merger calendar. On today’s bulletin (23.07.2020 – 2020/46) the CMB has announced that:
1. a) It was decided to welcome the merger demand documents from the Şişecam Group favourably.
b) Capital increase and new capital level will be finalised after the approval of merger decision at Extraordinary General Assembly Meetings and use of Exit Rights.
c) In addition to that, with the condition of approval in the General Assembly, a positive opinion was also given on the demanded changes for the articles of incorporation.
Although it is not explicitly stated in the bulletin, from these articles it is inferred that conversation rates, which were calculated by PwC based on four different methods, have been approved without a change.
I have attached the link and related page of the announcement in Turkish below.
Update on the Merger (27.07.2020)
As it is expected, companies of the planned merger have announced their Extraordinary General Assembly Meetings dates. In the public disclosure, companies have also presented relevant reports and revised documents due to legislative amendments.
Meeting dates for the companies are as following:
: Türkiye Şişe ve Cam Fabrikaları A.Ş.
: Soda Sanayii A.Ş.
: Trakya Cam Sanayii A.Ş.
: Anadolu Cam Sanayii A.Ş.
: Denizli Cam Sanayii ve Ticaret A.Ş.
Update on the Merger (28.08.2020)
Extraordinary General Assembly Meetings have been held on the previously announced dates and without any surprise merger decision has been approved successfully.
Final step will be now approval of the process and it is expected to take place in September. Exit right will be executed between 03-09 September 2020.
Update on the Merger (14.10.2020)
After all these information and updates, I think this is the final entry that I make on this title. As of 01 October 2020 the merger is copmleted and transformation of other shares to SISE realised.
A little personal note: SODA was one of my favourite stocks, so I kept it along the process. I didn’t use my exit right and let them converted to SISE. For the moment I still keep them and will see in what degree of benefit the company will get from this merger.
May it be auspicious