MOTOROLA DISPUTE SETTLED

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
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