CASE STUDIES IN CORPORATE FINANCE

POLLY PECK INTERNATIONAL

SUBMITTED TO:SIR ISHFAQSUBMITTED BY:RIFAT HUMAYUNRIPHAH INTERNATIONAL UNIVERSITY FAISALABAD CAMPUS

INTRODUCTION OF POLLY PECK

Founded in 1940 Public Company Headquarters in London , UK CEO Asil Nadir 17000 Employees Textile Industry Textile products Bankrupt & broken up in 1990

ASIL NADIR’S EARLY LIFE

Born on 1st May 1941 in Lefka, Cyprus. Turkish Cypriot former businessman Studied economics at Istanbul University Returned to Cyprus before graduation to set up

clothing business. In 1970’s he purchased a small British textile

company. Which he turned into a portfolio company with

which to make various corporate raiding purchases in fruit packing , clothing, and consumer electronics.

In 1980’s he was tycoon and CEO over 24,000 shareholders.

LATER CAREER OF ASIL NADIR’S Business in northern Cyprus Kibris media group Publishes the newspaper-weekly bi “Cyprus today” Owns radio and TV station Published articles Republican Turkish Party. Nadir was listed at 36th on Sunday Times Rich list in 1990. At that time he was the wealthiest individual in the Turkish Republic of

Northern Cyprus and holds business assets in the Republic of Turkey and TRNC.

Early in 1980 Restro Investments, a company Nadir controlled bought 58% of the company for £270,000.

Nadir took over as Chief Executive on 7 July 1980. On 8 July 1980 Polly Peck launched a rights issue to raise £1.5m of new capital for investments abroad.

In 1982 Nadir began the early ventures. These included Uni-Pac Packaging Industries Ltd, Voyager Kibris Ltd, and Sunzest Trading Ltd, three companies incorporated in the Turkish Republic of Northern Cyprus.

Uni-Pac was a corrugated box manufacturer and packaging company formed to take advantage of surplus citrus fruit being grown in Cyprus, which was forecast to produce a minimum of £2.1 million profit. Voyager Kibris Ltd was used to purchase the Sheraton Voyager Hotel in Turkey and to build resort hotels in Northern Cyprus.

In September 1982 Nadir acquired a major stake of 57% in a textile trader, Cornell Dresses.  Cornell rose from 26p to over 100p as soon as Nadir's interest was confirmed. Nadir had

Cornell sell a rights issue, raising £2.76 million. This capital, plus a further £6 million from Polly Peck, was used to set up the 'Niksar'

mineral water bottling plant in Turkey. Niksar subsequently sold an estimated 100 million bottles of water to the Middle East.

In 1983, Nadir also began expanding PPI's textile business by purchasing a 76 percent stake in Santana Inc. in the United States, and a majority stake in InterCity PLC in the UK.

Nadir then extended PPI's textile operations into the Far East, acquiring a majority stake in Impact Textile Group in 1986, and by increasing PPI's existing stake in Sansui Ltd. to 90 percent.

In 1987 PPI acquired a majority interest in Palmon (UAE) Ltd., a manufacturer of casual shirts.

In April 1984, PPI also diversified into the electronics business by acquiring 82 percent ownership of Vestel Electronics, one of the largest publicly traded companies in Turkey. Vestel manufactured colour televisions, air conditioning units, audio equipment, microwave ovens and washing machines.

PPI's success in the electronics business was substantially enhanced in early 1986 when Akai of Japan decided to join Ferguson, Salora, and GoldStar as licensors to Vestel. Subsequently, PPI also acquired housewares manufacturer Russell Hobbs.

By 1989 Polly Peck had become an international player by acquiring a 51% majority stake in Sansui. Also in 1989, Polly Peck bought the former Del Monte canned fruit division for $875 million from RJR Nabisco, which had previously acquired it.

Polly Peck then gained the ultimate award of being admitted to the FTSE 100Share Index in 1989.

In less than ten years, under this growth-by-acquisition strategy, PPI's market capitalization went from only £300,000 to £1.7 billion at its peak.

 It became a holding company for a world wide group of over 200 direct and indirect subsidiary companies.

Trading in the company’s shares was suspended on 20 September 1990. PPI’s problems became apparent from the structure of the group’s debts. The company had over £100 million in short-term revolving lines of credit. Even more

debt consisted of long term loans for which Nadir had offered Polly Peck’s shares as collateral.

In October 1990,Polly Peck ,a large UK quoted company, was placed into administration. At the beginning of August 1990 the share price was 418p,but by September 1990it had fallen to 108p.

This represented a loss of nearly 75% of their value in under two months. Trading of the shares was suspended by the London stock exchange and Polly Peck

collapsed with debts estimated at £1.3bn. In August 2012 the serious fraud office(SFO) prepared a case against Asil Nadir ,CEO

accusing him of theft and false accounting of £34m. But he was found guilty on stealing of £29m from Polly Peck.

He was sentenced to ten years imprisonment. Actually it was a scandal of corporate governance which also includes liquidity

problems, agency problem due to diversification ,acquisitions and mergers of different companies and long term debts.

SCANDAL OF CORPORATE GOVERNANCE AGAINST ASIL NADIR,CEO OF POLLY PECK INTERNATIONAL

Corporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed.

Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as , the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs.

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