Subject: [NEXTEL-1] $2 billion turkish bath

From: Marcel <[email-masked]>
Date: Wed, 30 Oct 2002 04:26:22 -0500

MSNBC Calls it "The Stupid Loan Bubble" andputs the price of the loan at $3B-
http://groups.yahoo.com/group/NEXTEL-1/message/778
=========================================================

Motorola's
$2 billion turkish bath

By: Samuel Loewenberg
Issue: October 2002

Money down the drain-
and now a nasty lawsuit

When Motorola executives looked at Turkey in 1998, they saw riches--a
country of 65 million people on the edge of Europe with fewer than two
million cellphone subscribers. Only two companies had been granted
wireless licenses by the Turkish government, and one of them, Telsim,
needed suppliers. Motorola quickly cut a deal. Says Ed Hughes, the
company's finance director: "Motorola and other competitors saw Turkey
as an enormous opportunity, and we went for it."
Four years later the Schaumburg, Ill., company's visions of Turkish
riches have dissolved into allegations of betrayal, of fraud--even of
murder threats. Not that you'll see any of this in Motorola's latest
quarterly report. "During the 'telecom boom' that peaked in late 2000,"
it reads, "numerous wireless equipment makers, including the company,
made loans to customers, some of which were very large." Very large
indeed. Try $2 billion in cash and equipment to a company Motorola never
fully vetted. And it wasn't alone in its folly. The Finnish wireless
maker Nokia kicked in another $700 million to Telsim. Now neither one
can get its money back.

The case is playing out in federal court in Manhattan, where Motorola
and Nokia are accusing members of the family that controls Telsim, the
Uzans, of hoodwinking them in an elaborate racketeering scheme. A trial
is expected early next year. "Every preliminary indication is that the
defendants, behind a facade of legitimacy, engaged in repeated acts of
fraud and chicanery, and thereby perpetrated, and continue to
perpetrate, a rather massive swindle," wrote U.S. District Judge Jed
Rakoff after six days of pretrial hearings this spring.

Murat Hakan Uzan, the CEO of Telsim, denies the allegations of fraud and
says he wants to repay the loans. Telsim defaulted, he says, because the
Turkish economy crashed after a catastrophic earthquake in 1999,
followed by a financial crisis in early 2001. "In my conscience, before
God, I don't think that this case can be ever against us," Hakan told
FORTUNE. Motorola and Nokia "took substantial risk with billions of
dollars" in an emerging market, he says. "But rather than portray the
truth of the picture, they want to cover up their own decisions."

The Uzans are one of Turkey's richest, most powerful clans. Family
patriarch Kemal, 70, started with a construction business in the 1950s,
which he expanded into a banking and media empire, now run by his sons,
Cem Cengiz, 42, and Murat Hakan, 34. The family fortune is estimated at
$1.3 billion, with more than 130 businesses in nine countries. But the
Uzans have a history of deals gone sour--including past disputes with
Siemens and Saatchi & Saatchi --and scores of lawsuits pending against
their companies.

In their eagerness to do deals at the height of the telecom boom,
Motorola and Nokia gave Telsim loan on top of loan, hoping for a big
payoff. They weren't the only companies playing at being banks. A 2001
report by McKinsey & Co. found that the nine largest telecom
manufacturers had $26 billion in vendor-financing loans outstanding,
much of it to troubled startups.

How Motorola and Nokia ended up giving $2.7 billion to the Uzans is a
story that anyone who has kissed a stranger at a bar after having had
too much to drink will understand. The 1998 deal, cut in London, made
Motorola the exclusive supplier to Telsim in exchange for $360 million
in equipment financing and $200 million to purchase Telsim's wireless
license. As collateral, Motorola was pledged a 51% stake in the company.
Hakan Uzan assured Motorola executives they had a hot property. "Let's
not kid ourselves by thinking that there is a financial exposure on your
part," Hakan wrote in a Feb. 24, 1999, e-mail to Hughes that is part of
the court record. Telsim, he said, had just received a written offer for
$3.5 billion from a major European telecom company.

In February 2000, Motorola loaned Telsim another $450 million and
increased its collateral to a 66% stake. By that spring Nokia was also
deeply involved, eventually receiving 7.5% of Telsim's stock as
collateral for $700 million.

But neither Motorola nor Nokia ever conducted a proper review of
Telsim's finances. Motorola spokesman Scott Wyman says the company did
"considerable due diligence." But Motorola did not get Telsim's audited
1999 reports until April 2000, by which time it had loaned the company
$1.3 billion. Even then, many questions were unanswered. "We had asked a
couple of times if we could send in auditors," says Hughes, in the first
interview a Motorola executive has given on the debacle. "[Hakan]
refused. We asked if we could talk to his auditors. He refused on that."

The wireless makers allege that the Uzans went to great lengths to keep
their finances secret. Once, in 1999, Hakan burst in on Hughes as he was
dining at an Istanbul restaurant with auditors from Deutsche Bank, who
were reviewing Telsim for a European export bank. Hakan claimed the
auditors had taken internal documents without permission and barred them
from Telsim's offices.

In September 2000 Merle Gilmore, then chief of Motorola's wireless
division, flew to Istanbul to meet Hakan. According to the complaint,
"in substance, CEO to CEO, eyeball to eyeball," Gilmore told Hakan, "'I
need your commitment that you will do everything in your power to sell
the company or raise capital from alternative sources so that Motorola
gets paid.'" Hakan said yes, and Motorola loaned Telsim another $700
million. Motorola now alleges that the Uzans had no intention of finding
a buyer.

In all this time, Motorola and Nokia had never talked to each other
about Telsim. When they finally did in early 2001, says Ernst Kramer,
the Nokia executive who helped negotiate the company's financing, "it
became totally clear what was happening. We went through the events, and
their story is practically identical to our story." In hindsight, both
companies suspect the Uzans used part of the loans to expand Telsim and
the rest to prop up their banks. Motorola and Nokia also discovered that
the Uzans held a secret shareholders' meeting in Switzerland at which
they tripled the number of Telsim shares. That watered down Motorola's
collateral to 22% and Nokia's to 2.5%. The Uzans say that the money sent
to the banks went to repay loans and that the new shares were issued to
guard against a hostile takeover.

When the two companies threatened the Uzans with legal action in the
summer of 2001, the Uzans filed a criminal complaint in Turkey, charging
senior executives of Motorola and Nokia with threats of kidnapping and
murder. The Uzans claimed that after the cellphone companies hired
investigative firm Kroll, family members received menacing phone calls
and were followed. The complaint, which resulted in an indictment,
accuses the executives of an "armed threat to kill." Motorola and Nokia
dismiss the charges as absurd and are fighting them in Turkish court.

In January, Motorola and Nokia filed a RICO suit in the Southern
District of New York accusing the Uzans of conspiracy to commit fraud.
In April, Judge Rakoff issued an injunction freezing $30 million of real
estate owned by the Uzans in New York and ordering them to turn over the
disputed shares, valued at $1.5 billion, to the stewardship of the
court. The Uzans refused. Lawsuits in Turkey filed by three of their
suppliers prevented them from turning over a controlling share of a
Turkish company to foreigners, they said. But Rakoff found the Turkish
suits were in "substantial measure the product of collusion" between
Telsim and the suppliers, which did all their business with Telsim. One
supplier was run by an Uzan first cousin.

In August, Rakoff found the Uzans in criminal and civil contempt for
refusing to turn the disputed shares over to the court. Hakan in
particular, he noted, had played an "obstructionist and deceptive role."
The judge ordered the defendants to pay an escalating fine, doubling
each month, until they complied. Meanwhile, a court in England granted
Motorola a worldwide hold on $200 million of the Uzans' assets.

Motorola and Nokia have been seeking diplomatic solutions as well. They
hired Mark Paris, a former U.S. ambassador to Turkey, to push their case
and asked the Bush administration to press the Turkish government on the
issue. Even that may not help. Turkey's government is in danger of
collapse, and Hakan's brother, Cem, is running for Prime Minister.

Motorola and Nokia were right about one thing: Turkey's cellphone market
is taking off. Despite financial problems, Telsim has grown from 500,000
subscribers in 1998 to 6.5 million today. But even if Motorola and Nokia
prevail in court, they might not benefit. "I doubt they are going to
recover any meaningful amount of money," says Woytek Uzdelewicz, a
telecom analyst at Bear Stearns. Indeed, both companies have already
written off the full amount of the loans. Maybe there should be an entry in the accounts:
tuition for lessons learned.

http://www.business2.com/articles/mag/0,1640,44017,FF.html

---

From: "Todd Ellis" <[email-masked]>
Date: Wed, 30 Oct 2002 07:18:27 -0500

Welcome to international business.  Nothing new here; just folks who
SHOULD have known better and made different decisions.  It sounds like Mot
felt they were on the ropes and made hasty, risky decisions.  I read this
article and laughed, but frankly it's pretty sad.

  Todd Ellis

   ----Original Message-----
  From: Marcel [mailto:[email-masked]]
  Sent: Wednesday, October 30, 2002 4:26 AM
  To: [email-masked]
  Subject: [NEXTEL-1] $2 billion turkish bath

  MSNBC Calls it "The Stupid Loan Bubble" andputs the price of the loan at
$3B-
  http://groups.yahoo.com/group/NEXTEL-1/message/778
  =========================================================
  Motorola's
  $2 billion turkish bath

  By: Samuel Loewenberg
  Issue: October 2002

  Money down the drain-
  and now a nasty lawsuit