November 29, 2016 / 10:50 AM / in a year

UPDATE 2-Turkcell deadlock 'back to square one' after Russian tycoon fails to secure stake

(Recasts, adds details and comment)

By David Dolan and Can Sezer

ISTANBUL, Nov 29 (Reuters) - The decade-long struggle over control of Turkcell, Turkey’s top mobile network operator, took another turn on Tuesday when Russian billionaire Mikhail Fridman said he was unable to buy a disputed stake from his Turkish rival.

Turkcell has been hampered by the protracted feuding between three of its shareholders - Fridman, the company’s founder Mehmet Emin Karamehmet and Sweden’s Telia Company. The legal battle has generated its own lengthy Wikipedia entry and been compared by one legal observer to a low-budget horror movie for its seemingly “inexhaustible supply of sequels”.

Under a London court decision handed down in August, Fridman’s LetterOne Technology investment business had a right to buy out the stake owned by Karamehmet’s Cukurova Holding conglomerate. On Tuesday LetterOne said it had been prevented from doing so by an injunction in the British Virgin Islands which barred the transfer of the shares.

“There is therefore no legal means to purchase these shares and reinstate good corporate governance at Turkcell,” LetterOne said in a statement.

The injunction was granted after Cukurova refused to pay an outstanding debt to Telia, which with interest is now worth $1.1 billion, according to LetterOne.

LetterOne indirectly holds 13.2 percent of Turkcell, while Karamehmet’s Cukurova indirectly holds a 13.8 percent stake. Telia owns 37 percent. As part of Turkcell’s labyrinthine share structure, Fridman’s interests are held through a subsidiary Alfa Telecom Turkey.

Cukurova declined to comment.

However, a person familiar with Cukurova’s thinking said it and Alfa were “back to square one”. The person also said LetterOne’s reason for not buying the stake, the injunction, was an “excuse” and it should not have prevented the transaction.

A LetterOne spokesman could not be reached for a response.

SHARES FALL

The London tribunal had set a deadline of Nov. 18 for Cukurova to choose to buy Fridman’s shares for $2.7 billion, or sell its own stake to Fridman for $2.8 billion. After Cukurova did not make a decision by the deadline, the option to buy passed to Fridman.

But those price tags carry a hefty premium to current market prices, given that the entire company is worth around $6.2 billion, according to Thomson Reuters data.

Shares in Turkcell were down 3.5 percent at 9.35 lira by 1415 GMT, making them the biggest single drag on Istanbul’s BIST 100 index, which was down 0.7 percent. Investors have been frustrated by the deadlock, which even prevented annual general meetings from being held and dividends paid out.

Turkcell paid out dividends for the first time in years in 2015, with LetterOne receiving nearly $200 million, according to its website.

The dispute started when Fridman’s Alfa seized Karamehmet’s stake, saying Cukurova had defaulted on a 2005 loan agreement for which the shares were pledged as collateral.

The injunction preventing the transfer of shares was granted for the benefit of Telia, following a separate international arbitration case in 2011, LetterOne said. (Additional reporting by Birsen Altayli and Daren Butler; Editing by Nick Tattersall, Greg Mahlich)

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