Polly Peck Scandal

Polly Peck
Former type

Public

Fate

Bankrupt & broken up

Founded

1940

Defunct

Bankrupt 1990

Headquarters

London, UK

Key people

Asil Nadir, (CEO)

Industry

Electronics

Employees

17,220

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Polly Peck Scandal

Polly Peck
Polly Peck International (PPI) was a small and barely profitable United Kingdom
textile company which expanded rapidly in the 1980's and became a constituent of the FTSE
100 Index before it collapsed in 1991.

History
Foundation
The Company was founded by Raymond Zelker and his wife Sybil in 1940 as a small
fashion house operating in London.

Introduction
Once a leading star of the FTSE 100, Polly Peck collapsed under the weight of debts
after being fraudulently of cash.
The tale of Asil Nadir and Polly Peck was literally one of rag trade to riches. In the
1980s, Nadir seemed to have the golden touch, with booming success wherever he turned his
hand, making some pretty pennies for many of his early investors.
But when the Polly Peck empire collapsed in 1991, Nadir ended up on the run from the
Fraud Office. In 1993 he fled to Turkish Northern Cyprus, which has no extradition treaty with
the UK, to escape trial on charges of systematic fraud. He is still there to this day.

Humble beginning
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It all started back in 1941 in Lafka, Cyprus, with the birth of the boy who was to soon
acquire an entrepreneurial bent through his first job, at the age of six, selling newspapers. Later,
after failing to complete a university degree, he joined his father in the UK, where he got his first
taste of the rag trade.
After the Turkish invasion of Northern Cyprus, Nadir returned to his homeland and took
control of a clothing company whose previous Greek owners had been forced out. From this
beginning the Polly Peck story took off after Nadir bought into the company.

The New Chief Executive

Early in 1980 Restro Investments, a company controlled by Asil Nadir, a Turkish
Cypriot, 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,
whose shares were considered penny shares. 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

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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 Shuihing 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 color televisions, Betamax video recorders, 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 house wares
manufacturer Russell Hobbs.
By 1989 Polly Peck had become an international player by acquiring a 51%
majority stake in Sansui (a Japanese electronics company on hard times). This was one of the
first foreign acquisitions of a major Japanese company listed on the Tokyo Stock Exchange. Also
in 1989, Polly Peck bought the former Del Monte fresh fruit division for $875 million from
RJR Nabisco, which had previously acquired it. Polly Peck then gained the ultimate accolade of
being admitted to the Financial Times 100 Share Index in 1989.
By 1990 five firms had emerged as the dominant actors in fresh fruits and vegetables in
Western Europe and North America. These were the ex-banana giants: Chiquita, Dole, and Del
Monte Tropical; and the two new upstarts: Polly Peck International and Albert Fisher. The move
was part of a larger planned restructuring under which Polly Peck developed its electronics,
foods and leisure businesses into three largely independent companies.

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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 worldwide group of over 200 direct and indirect subsidiary companies.
With pre-tax profits of 161.4 million, net assets of 845 million and 17,227
employees, the Polly Peck group was one of Britain's top one hundred quoted companies. Polly
Peck and its subsidiaries was the largest employer in Northern Cyprus (after the state) with
7,500 employees there.

Attempt to take the Company private

In August 1990 Nadir came to the view that the Company was undervalued and then
announced that he was taking it private. Almost as suddenly later that month he announced that
he had changed his mind.

Downfall
Apparently not too keen on public scrutiny, and stung by criticism of lack of transparency
concerning the group's earnings. News of the planned buyout sent the highly priced shares even
higher. Unfortunately, the company was highly leveraged at the time, owing over 1b to
more than 100 banks spread over a complex debt structure. Attempts to restructure this debt
failed, and the banking support needed for the takeover did not materialise.The share price began
to fall again.

Fraud
During this time, control of Polly Peck's cash appears to have been virtually non-existent,
and Nadir had been transferring vast sums into secret private accounts in Northern Cyprus and
Turkey. Investigations subsequently discovered that, in the two years leading up to Polly Peck's
collapse, Nadir had been bleeding the company dry. In 1988 Polly Peck transferred 58m to

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Turkish and Cypriot subsidiaries, and in 1989 a sum of 141m was paid out in 60 separate
transactions. Many of the company's assets, again in Northern Cyprus and valued at 25m,
had also been secretly registered in Nadir's name.
Administrators failed to save the company, and Polly Peck was no more. Nadir was
charged with 70 counts of false accounting and theft, and released on 3.5m bail. He
skipped the UK (as the story has it, when detectives watching him were off duty on a bank
holiday to save overtime pay), and to date has not returned.

Collapse
On 20 September 1990, the Serious Fraud Office (SFO) raided South Audley
Management, the company that controlled the Nadir family interests. The raid triggered a run on
Polly Peck shares with the price practically in free fall.
Trading in the companys shares was suspended on 20 September 1990. PPIs problems
became apparent from the structure of the groups 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 Pecks shares as collateral.
On 25 September 1990 the Company was placed in administration.
Ultimately the company collapsed, and charges were brought against Asil Nadir for 70
charges of false accounting and the theft, which he denied.
In 1991, Polly Peck Group transferred all of its Vestel Electronics shares to one of its
subsidiaries, Collar Holding BV, which was based in the Netherlands. In the same year,
following the collapse of the Polly Peck Group, PPI was placed in administration. In November
1994, Ahmet Nazif Zorlu acquired PPI from the administrator by buying the entire share
capital of Collar Holding BV, which at the time held 82% of the Polly Peck's issued share
capital

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Leaving the UK
Nadir left the UK just after his 3.5 million bail had lapsed, while the detectives who
were watching him were off duty to save overtime pay on a holiday. He remains a fugitive in
Northern Cyprus, which has no diplomatic relations. Peter Dimond, the pilot who flew him out
of Britain, was convicted of aiding a fugitive, but the conviction was quashed once it was
determined that the bail had lapsed.
At the end of the controversy, the Serious Fraud Office and the British political
establishment were both discredited. A government minister resigned, denouncing prosecuting
authorities. A high court judge and a QC were accused of a 'plot' to pervert the course of justice.
The Attorney General had to apologies for misleading Parliament.

Aftermath
Unlike most of the other fraudsters we've looked at in this series, Nadir has so far not had
his comeuppance. Today he runs Kibris Media Group in North Cyprus, which publishes a
couple of newspapers and operates TV and radio stations. He is, apparently, accompanied by a
retinue of bodyguards wherever he goes, which is probably a wise move.

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References
http://www.fool.co.uk/news/investing/2009/06/22/famous-scams-polly-peck.aspx
http://en.wikipedia.org/wiki/Polly_Peck

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