Vivendi takes Deutsche Telekom to US court over PTC

Deutsche Telekom AG used US communication networks in a conspiracy to deprive Vivendi SA of its $2.5 billion investment in Polska Telefonia Cyfrowa SA (PTC), Poland's second-largest mobile-phone company, Vivendi lawyer Lanny Davis said at a press conference in New York. The suit was filed under the Racketeer Influenced and Corrupt Organizations Act, which allows triple damages. Vivendi, Deutsche Telekom, Elektrim SA of Poland and Elektrim's bondholders are fighting for the Warsaw-based phone company in more than 50 lawsuits in five European countries. Britain's House of Lords ruled on one case last year, and this month Poland's Supreme Court said it would examine another case. „We cannot be deprived of something that belongs to us that we paid for,” Vivendi Chief Executive Jean-Bernard Levy said at the New York press meeting. He said Deutsche Telekom „pretends to own” Vivendi's stake in Cyfrowa „without paying for it.” The dispute dates back to 1999, when Elektrim bought up a controlling stake in Polska Telefonia Cyfrowa, transferred it to subsidiary Elektrim Telekomunikacja Sp. z o.o., and sold a stake in the unit to Vivendi. Deutsche Telekom says that violated its pre-emptive rights.

Vivendi's press conference shows how „absurd and desperate” the company's actions are, said Michael Lange, a spokesman for Deutsche Telekom, Europe's biggest phone company „The company is repeating old accusations with which it has been unsuccessful before European courts in Poland and Austria as well as an international court of arbitration.” Deutsche Telekom reiterated it's the legal owner of 97% of Polska Telefonia Cyfrowa. „Vivendi now believes it needs to shift the legal case regarding the Polish company to the US and to the city of Seattle where T-Mobile USA is successfully headquartered,” Lange said. „We believe the American court will not let itself be used for this kind of maneuver.” Elektrim denies any wrongdoing and „is acting in accordance with the law and following binding court decisions,” spokeswoman Ewa Bojar said.

At the end of June, Polska Telefonia Cyfrowa lost its lead in Poland's mobile-phone market to Telekomunikacja Polska SA's Centertel unit, which uses the Orange brand of Telekomunikacja's parent France Telecom SA. „It's hard to find a reason other than the shareholder dispute, and the resulting lack of a consistent strategy,” for Polska Telefonia Cyfrowa losing its lead, said Krzysztof Kaczmarczyk, an analyst with DB Securities in Warsaw. „Since the end of 2004 it's just been reacting to what's happening on the market, and before it was always the leader.” RICO lawsuits, typically used in criminal prosecutions, can be used in civil cases where companies or individuals are accused of knowingly breaking the law. The US Justice Department in August won a RICO case accusing cigarette manufacturers of marketing low-tar cigarettes as healthier alternatives to full-flavored brands. Vivendi has also started the process of suing the Polish government under a bilateral French-Polish treaty for failing to protect its investment in the country, which will take „a long time,” Levy said. He declined to comment on whether Vivendi will seek criminal charges in addition to those it has already filed.

Levy said Vivendi is spending „several million euros a year” though „in the single digits” on its fight for Polska Telefonia Cyfrowa. It has written off the value of the stake on its balance sheet, he said. „I don't know how much it will cost in legal fees, but if Vivendi thinks this is worth fighting for, then I suppose they should,” Pierre Bucaille, an analyst at Banque Privee Federaum Wargny said before the conference. Because of the write-down, the result of the lawsuits „can only be a good surprise,” he said. Davis said the case could take a minimum of 1 1/2 years. Vivendi said on October 10 it had filed a „criminal complaint” with Polish prosecutors against Deutsche Telekom and Elektrim to prevent „any illegal transfer” of shares in Polska Telefonia Cyfrowa. Deutsche Telekom said on October 4 that it made a first payment of more than €600 million ($754 million) to Elektrim for 48% of Polska Telefonia Cyfrowa. Vivendi says Elektrim Telekomunikacja, which it now controls, owns that stake. Both sides filed criminal complaints in Poland in early 2005, after a management board backed by Deutsche Telekom and Elektrim took control of Polska Telefonia Cyfrowa's headquarters in February of that year, evicting a Vivendi-backed board by persuading its security guards to change sides. Prosecutors never filed formal charges. (Bloomberg)