The legal duel as well as the claims and counterclaims between Motorola Inc. and Turkish carrier Telsim intensified with a recent full-page advertisement in the Wall Street Journal and some other large-circulation publications, highlighting the woes of vendor financing.
In the ad, titled “Important Notice to Motorola Shareholders,” Telsim claimed that the Schaumburg, Ill., firm’s legal actions against Telsim were “its management’s efforts to divert attention from their failure to inform you (shareholders) of risks they took when seeking a foothold in the worldwide telecom market and to cover up their mediocre performance.”
In a written response to RCR Wireless News inquiries, Motorola spokesman Scott Wyman described the ad as “the latest example of the continuing fraudulent behavior being perpetrated against Motorola and its shareholders.”
At the core of this dispute lies a $2.7 billion loan Motorola granted the operator in vendor financing in 1999 and Telsim’s inability to repay the debt. Motorola has sued Telsim, owned by the Uzan family, for violating the Racketeer Influenced and Corrupt Organizations law. The Uzan family claims that it plans to pay back the debt through a rescheduled program under Swiss arbitration.
“The dispute reflects some of the drawbacks of vendor financing,” remarked Ozgur Aytar, analyst with Fast Track Wireless. “But it does not vitiate what is good about it. I think vendor financing should continue.”
A recent tussle over vendor financing between Lucent Technologies Inc. and WinStar has been resolved and has allowed Lucent to instead focus on its survival, she said. Many vendors do not disclose their investments in many of the carrier deals announced, especially for 2.5-generation and third-generation contracts. But industry watchers say it accounts for some of the vendor problems.
Aytar said the competition to win contracts has led many vendors to lower prices and invest more, and they suffer when the carriers fail. A recent example is the carrier Mobilkom in Germany, which is now selling off its property because it cannot roll out 3G services. Siemens AG cites it as a reason it does not commit to any carrier deal without a viable business case.
In the ad, Telsim accused Motorola of the following:
c Launching a defamatory media campaign against Telsim’s owners.
c Bringing unfounded Racketeer Influenced and Corrupt Organizations claims against owners of Telsim.
c Lobbying through a hired former U.S. diplomat to have Telsim’s operating license revoked by the Turkish Government.
c Ignoring the express contractual provision that disputes should only be resolved in Swiss arbitration.
c Having individuals spied on in Turkey through the use of illegal methods and parties.
Motorola’s Wyman referred to the two court proceedings in the United States and United Kingdom, noting the comments of Judge Jed S. Rakoff of the U.S. District Court in New York that “the court concludes that (Motorola and co-plaintiff Nokia) have established liability on all of their claims, not only by a preponderance of the evidence but indeed by overwhelming evidence.”
But in a setback for Motorola, the U.S. Court of Appeals for the Second Circuit upheld the Telsim position that the federal courts lack jurisdiction over the case and dismissed the RICO claim. But Motorola interpreted the court’s decision differently.
“While the Second Circuit ordered that the RICO claims be dismissed as unripe (premature), the dismissal was without prejudice to re-filing those claims at a later time,” wrote Wyman. “Motorola has filed a motion with the lower U.S. district court seeking reinstatement of those claims.
“Furthermore, the Second Circuit left undisturbed the district court’s factual findings as to the underlying frauds perpetrated by the Uzans, as well as Motorola’s state law claims for fraud and civil conspiracy, which alone justify an award of the full amount of damages Motorola is seeking,” Wyman stated, adding that the factual findings and state law claims are “more than sufficient to support the district court’s preliminary injunction.”
Telsim claims that Motorola’s victory claim is premature and leads back to the need for a Swiss arbitration.
“A preliminary victory in a New York Court was trumpeted in the media by Motorola, despite the fact that, for jurisdictional reasons, the full arguments and counterclaims of Telsim and its owners were never properly heard,” claims Telsim in the ad.
Telsim claims that Motorola wants its shareholders to believe that the loans “are a 100-percent loss,” although “in confidential negotiation in 2001 and 2002, Telsim and its principal owners offered concessions to try to agree on a rescheduling of the Motorola debt.” Telsim added that Motorola management has repeatedly rejected debt rescheduling and settlement offers from Telsim.
The Uzans attributed the company’s troubles to two major earthquakes in 1999 and 2000 that played havoc with the country’s economy and led to 15 major Turkish bank closures.
“Motorola management has severely and knowingly damaged the Telsim brand, its retail sales and its subscriber growth,” noted the ad. “These are, of course, the very sources of income from which the loans could be repaid.”
The ad was placed to mark Motorola’s 75th year anniversary and against the backdrop of shareholder impatience with the company’s fortunes. The Telsim case also has brought class-action lawsuits from its shareholders in California, New York and Illinois, claiming that the management did not disclose the amount of the Telsim deal to its common stock holders.
Some of the shareholders already are calling for chairman Christopher Galvin to step aside, claiming his sentimental attachment to the firm his family started has clouded his vision of profitability.
