US embassy cable - 05ISTANBUL1889

UNCLAS ISTANBUL 001889 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR E, EB/CBA AND EUR/SE 
USTR FOR LERRION 
TREASURY FOR OASIA - MILLS AND ADKINS 
USDOC/ITA/MAC FOR DAVID DEFALCO 
TDA FOR SNYDER 
 
E.O. 12958: N/A 
TAGS: EINV, ECPS, BEXP, TU, Istanbul 
SUBJECT: MOTOROLA DISPUTE SETTLED 
 
REF: A. ISTANBUL 1577 
 
     B. ANKARA 4332 
 
This message is sensitive but unclassified.  Not for internet 
distribution.  This message was coordinated with Embassy 
Ankara. 
 
1. (SBU) Protracted negotiations between Motorola and the 
Turkish Savings Deposit Insurance Fund (SDIF) came to a 
successful conclusion on October 28 with the signing of an 
agreement by which Motorola renounced its legal claims 
against both the SDIF and Telsim in exchange for a cash 
payment of USD 500 million and the right to receive 20 
percent of the proceeds of the sale of the company over USD 
2.5 billion.  Motorola also dismissed its litigation against 
Telsim and its arbitration case against the Government of 
Turkey.  It retains the right, however, to pursue its claims 
against the Uzan family in jurisdictions outside Turkey and 
"certain other agreed upon countries."  The settlement 
follows by several months a similar settlement with Nokia, 
which was also defrauded by the Uzans, by which that company 
will receive 7.5 percent of Telsim's sale proceeds. 
 
2. (SBU) Conclusion of the deal has been anticipated for 
months.  SDIF President Ahmet Erturk confirmed to us in 
September that financial provisions had long since been 
agreed to by both sides (refs).  The key stumbling block 
proved to be finding the legal phraseology to provide 
Motorola's desire for an iron-clad payment guarantee, even if 
the seizure of Telsim, from which the payment will be 
financed, were to be overturned.  In the end, the model 
outlined by Erturk to us in September was used: an up-front 
cash payment for the bulk of the settlement (USD 500 
million), with the remainder to come from the proceeds from 
sale of Telsim itself.  Industry sources predict that with 
current heated interest in Turkish assets from both local and 
international investors, Telsim could easily attract bids of 
up to USD 4 billion, well above its USD 2.8 billion reserve 
price.  Motorola could thus conceivably recoup up to USD 800 
million of its USD 2 billion plus loss on its ill-fated 
equipment supply contract to the Turkish cellular phone 
operator. 
 
3. (SBU) In its statement, Motorola praised the Turkish 
government's "cooperation and diligent efforts to find a 
solution" that both allowed Motorola to collect on its debt 
while also preserving Telsim as a viable cellular carrier. 
That effort, the company said in its press release, 
"instills confidence in Turkey's strong economic and 
investment climate" and will enable Motorola to continue to 
support Telsim's operations. 
 
4. (SBU) Comment: Motorola executives both locally and in 
Washington have expressed appreciation for longstanding USG 
support for their efforts to achieve a settlement with the 
SDIF.  The company's statement makes clear that the Telsim 
chapter is not totally closed, however: several class action 
suits in the U.S. against former Motorola officers and 
directors continue as a result of the original Telsim deal, 
as does an SEC investigation.  And in a clear indication that 
once-bitten, twice-shy, the company warns that its optimism 
about the settlement involves "risks and uncertainties," in 
that "failure of any party to perform...or if Telsim is not 
sold or is sold at a low price" could cause Motorola's actual 
results to fall short of expectations.  All in all, however, 
the deal is an extremely positive one for both sides, 
enabling Motorola to win significant compensation, and at the 
same time enhancing the value of Telsim and thereby allowing 
the GOT to defray more of the costs it assumed when it took 
over the Uzans' Imar Bank. 
 
5. (SBU) The settlement also marks a turning point regarding 
U.S. business problems in Turkey.  The Motorola problem had 
long stood out as one of the highest-profile U.S. business 
problems here.  Its resolution, following on the resolution 
of Cargill's zoning problem, will go a long way to change 
Turkey's reputation as a bad environment for U.S. businesses. 
 In both cases, the GOT played a role, albeit slowly, in 
getting to a settlement satisfactory to the American firm. 
End Comment. 
SMITH