By CHRISTOPHER DELISO
Aug. 14, 2003 (UPI)- On July 31st, a New York district court awarded $4.26 billion in fraud restitution to Motorola in a case against Turkey’s third-largest mobile operator, Telsim. CEO Hakan Uzan disparaged the case as a “travesty of good business management,” and claimed that the court had “only heard one side of the story.”
This big victory for Motorola was reaffirmed on Monday, when District Court judge Jed Rakoff denied Telsim’s request to stay execution of the judgment pending appeal.
The judge agreed only to stay execution until Thursday. After that, the Uzans must post a $1 billion bond to extend it.
The judge’s verdict is heartening for the world’s second-largest mobile phone maker. Yet will it ever collect on the damages? And why is the case so important to Motorola, anyway?
In 1995, Motorola entered the Turkish wireless market, which was perceived to be on the verge of explosive growth. It soon found a partner in Telsim.
For 5 years, Motorola (together with Nokia) lent $2.8 billion in cash and equipment to Telsim. The company’s owners, the Uzan clan, are Turkey’s fourth-richest family with a net worth of at least $1.3 billion.
However, the loans haven’t been repaid. Motorola claims that the Uzans knowingly defrauded them, siphoning $1.8 billion by diverting Telsim’s loans and revenue. The Uzans, according to Motorola, never intended to make good on the debt in the first place.
In January 2002, Motorola and partner Nokia filed a lawsuit in US District Court in New York, charging that the delinquent Telsim had violated anti-racketeering laws under the RICO (Racketeer-Influenced and Corrupt Organizations) statute.
According to Canada’s “National Post,” Judge Rakoff damned the family as guilty of having “…perpetrated a huge fraud. Under the guise of obtaining financing for a Turkish telecommunications company, the Uzans have siphoned more than a billion dollars of plaintiffs’ money into their own pockets and into the coffers of other entities they control.”
The Uzans categorically denied the charges and are appealing the court’s decision. They have questioned the court’s legitimacy, demanding that the dispute be heard by a three-person arbitration panel in Switzerland- the agreed formula for dispute resolution stipulated in the original contract.
On May 31, the “Washington Post” reported that Telsim was taking out full-page newspaper ads, hiring New York PR firm Abernathy MacGregor Group, in an attempt to discredit Motorola before its shareholders. The ads claimed that Motorola concealed its loans to Telsim as sales, thereby artificially inflating its revenues.
Embattled Telsim has other legal headaches. In June, the Italian-owned IS-TIM Telekomunikasyon Hizmetleri was awarded 18 million euros by the Turkish Competivity Board. The body ruled that Telsim (and fellow mobile operator Turkcell) had violated competition law by not signing a roaming agreement with IS-TIM. Turkcell has since said that it will appeal the decision with the Turkish High Administrative Court.
The main problem for Telsim at home, however, is the simmering feud between Prime Minister Recep Tayyip Erdogan and the Uzan family, which has seen suits and counter-suits amid charges of slander.
Businessman-turned-politician Cem Uzan, whose right-wing “Youth Party” challenged in November’s elections, publicly questioned Mr. Erdogan’s Muslim-ness in June, after the government seized one of the Uzans’ utilities, leading to a slander site filed by the Prime Minister shortly thereafter. Erdogan’s ruling Justice and Development Party had also appropriated one of the family’s two banks and suspended five Uzan-owned television stations for a month. Shades of Putin vs. the oligarchs, perhaps?
Motorola claimed that Uzan only wanted to enter the parliament to win immunity from any future prosecution. Already, courts in Britain have frozen family assets and ordered that any Uzan found on British soil be locked up. An Uzan plane was also grounded in France, in compliance with Motorola’s wishes.
Ironically, through all the furor Motorola’s original hunch in the Turkish telecommunications sector has been abundantly proven.
According to Europemedia.net, the Turkish telecom market grew by almost 10 percent last year, to $7.6 billion. The mobile sector alone grew by 38.6 percent, hitting almost $3 billion. Although Turkcell has the largest subscriber base (16.3 million), the state-owned Turk Telecom is larger, and Telsim currently third. Turkish newspapers have issued conflicting reports in recent weeks alleging that Telsim is being transferred to Nokia, Motorola or Vodafone.
But will Motorola actually collect the $4.26 billion- and will the whole experience have proven worthwhile in the end?
Motorola has been seeking broader restitution- or, as Hakim Uzan called it, fulfilling a “perverse satisfaction”- by filing suits across the world in an attempt to freeze Uzan family assets. Yet this arduous and time-consuming task has already cost Motorola shareholders hundreds of millions of dollars. And there’s no guarantee that the $4.26 billion will be paid anytime soon, considering the appeals process and the foreign provenance of Telsim.
Further, as the Telsim ad campaign smugly noted, Motorola is facing 19 shareholder lawsuits regarding the loan disclosure. The “Washington Post,” noted of a Motorola’s shareholder meeting in May, “angry investors criticized the company’s poor stock performance and the $1.5 million bonus recently awarded to chief executive Christopher B. Galvin.”
Considering all the acrimony of the last two years, Motorola must get the moral victory- and keep the shareholders quiet. Yet the case matters to Motorola largely because it is in trouble.
On Monday, Bloomberg reported a sales decline of about 10 percent, to $6.16 billion, and a likely fall in sales and profit again this quarter.
Caroline Gabriel, on the British tech site theinquirer.net, recently questioned Motorola’s imminent partnership with Microsoft on a new Windows mobile phone:
“…Motorola has, for the first time in its history, fallen out of the top 10 global chipmakers, has lost its sure footing in handsets and is seeing its domination of the set-top box market threatened. It needs friends, and bringing out a Windows handset may be a small price to pay.”
Even worse, a steadily gaining Samsung is now teaming up with Nokia to develop software and their shared Symbian platform. Nokia, the world’s leading maker of mobile phones, is also hitting Motorola at home. Although the Finnish company hasn’t yet gained the market visibility in America that it has long had in Europe, it’s now making inroads.
And Nokia is also pushing Motorola in another key market- China. To add insult to injury, on Monday the company lost Tim Chen, the president of subsidiary Motorola China Electronics Ltd. (MCEL). Chen defected to Microsoft’s China operation.
Indeed, as Gabriel notes, “…Microsoft has done what it is really good at — hung around until it gets a major but wounded player to give in to its courting, then poise itself to take the helm. Perhaps it’s not so ridiculous to suggest that Microsoft should just buy up Motorola and go after Nokia in earnest.”
Today, the Uzans remained defiant. According to “Zaman” of Turkey, the family is negotiating a $675 million Nokia debt in Switzerland, a process which Hakim Uzan said will last 9 months. The patriarch again lashed out at Motorola, charging, “…this is a deliberate and planned political campaign. However, as long as you are right before the law you can handle it — and we believe in this.”
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