Petkim Bid Controversy As More Sell Offs Announced

Turkey

Economic News

22 Jul 2010
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Turkey’s privatisation programme took another step forward this week with announcements on tendering for oil refiner Tupras and alcohol and tobacco giant TEKEL. However, controversy surrounded the successful bid for petrochemical company Petkim by a firm controlled by the Uzan family - who are currently facing a USD3bn lawsuit in New York.



On June 9, the Privatisation Administration announced through the Official Gazette tenders for a 65.76% stake in Tupras and 100 stakes in TEKEL’s alcohol and cigarette plants. The Tupras sale - which has a bid deadline of September 18 - requires a USD30m bid bond for participation. The company has paid in capital of around TL250tn.



TEKEL, meanwhile, is being sold in two parts - alcohol and cigarettes. The first has a paid in capital of TL13tn, the second TL35tn. Both are considered good bets for a high bid, as TEKEL has long recorded a profit and has a major market share. The cigarettes and tobacco arm has already attracted interest from big tobacco giants such as Philip Morris, BAT and Imperial. These will also have to contend with a bid being put together by local TEKEL wholesalers, who have been active on the political front in drawing attention to what they fear may be major redundancies following privatisation.



The deadline for both arms of TEKEL is September 26, with a bid bond of USD15m required for each arm, plus a USD50 000 fee required from bidders for a package of confidential information on the companies on which to base their bids.



However, bidding elsewhere has not been without its problems. Most recently, one of these has been Petkim. A majority stake in the company had been put out to tender, with several bidders, and the result was announced June 5. The winner was the controversial Uzan family, who bid USD605m for an 88.86% stake.



The bid has been the subject of debate since for two reasons. Firstly, because of the status of the Uzans themselves, and secondly because of the status of Tupras itself. The petrochemical firm’s mcap was around USD1.1bn at the close of business June 4, leading Prime Minister Recip Tayyip Erdogan himself to say that the bid seemed “significantly cheaper” than the value of the company.



Yet the Uzan bid was the highest offered. The result when markets reopened on Monday was a major slump in Petkim’s shares, which plunged some 20%. The company has some 4% of its shares listed on the Istanbul Stock Exchange. Traders evaluated the much lower privatisation bid price as an indication that the mcap might be seriously off the mark.



Erdogan also said that the offer would be reviewed, as the Uzan bid is not quite in the bag yet. The Privatisation Administration has to okay the offer, while several labour unions and civil organisations have since vowed to take the whole business to court if authorisation is given.



However, with the Uzan bid the highest, doubt remained over whether any challenge could be made on the grounds that the mcap had been much higher. One of the losers in the bidding was Zorlu Holding, who had put in any even lower claim. Holding company chief Ahmet Nazif Zorlu told the daily Sabah June 9 that “Those who say [the bid was too low] do not know how to count. Even USD605m is too high a price for Petkim.”



There is also the issue of the Uzan’s standing. The family own Telsim, one of Turkey’s top two GSM networks, which has been mired in legal action since early 2002. In a New York court currently, Motorola and Nokia are accusing them of fraud and racketeering. They allege Telsim has defaulted on some USD3bn used to set up the network and buy handsets to distribute to Turkish customers. They also allege that the Uzans watered down the shares of the company illegally in order to wipe out Motorola and Nokia’s influence on the company board.



The Uzans have also been subject to a number of other court cases in recent years - notably over Cukurova Electric - while Cem Uzan, one of the family’s leading members, ran in last November’s general elections as head of his own far-right party.



Telsim itself was also in the news as the week began as, along with its main rival, Turkcell, it was fined TL8.58tn for refusing to allow its smaller rival, Aria, access to its network for national roaming.



The decision, handed down by the Competition Board, also hit Turkcell for TL21.8tn for the same misdemeanour. The figures represented 1% of each company’s net sales in 2001.



The denial of roaming was declared an attempt to stifle competition. Turkcell had originally demanded USD555m from Aria - which is joint owned by Telecom Italia (TIM) and Turkey’s Is Bank - while Telsim had demanded USD900m for national roaming fees. The Board ruled that these were extortionate amounts.



The decision, when coupled with one earlier this year to merge Aria with Aycell, the tiny number four GSM network owned by Turk Telecom, should give Aria a much needed boost in competing with its larger, earlier-entry foes. TIM had earlier threatened to pull out of the Turkish market altogether if no satisfactory agreement could be found on the roaming issue.

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