Polly Peck

Polly Peck

Polly Peck International (PPI) was, until around 1979, a small and barely profitable United Kingdom textile company. It was founded in 1940 by Raymond Zelker and issued shares in the 1970s. It had a dramatic expansion in 1980s, when Asil Nadir, a Turkish Cypriot (the Sultan of Berkeley Square, as he was known) used Polly Peck as a vehicle for his corporate empire-building. He turned PPI into a large conglomerate by expanding through acquisitions and diversification.

In early 1980, Nadir bought 58% of Polly Peck at 9p per share. Polly Peck then had a market capitalisation of just under £300,000.

On 7 July 1980, Nadir became Polly Peck's chief executive.

Massive growth

8 July 1980 marked the beginning of the company's growth, when Polly Peck sold a rights issue of 1.5 million shares at 85p per share to raise 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 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 housewares 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 westernEurope 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.

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.

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 were the largest employer in Northern Cyprus (after the state) with 7,500 employees there.


In 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 company’s shares was suspended on September 20, 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. As the stock price declined, the value of these shares fell to less than one-fourth of the related outstanding debt. Polly Peck shares opened at 245 pence on September 20, and within minutes the issue dropped more than 25 pence or ten percent. By 11:00 AM the share price dropped to 180 pence and by 2:20 PM, when the shares were suspended, they had dropped to 108 pence. Moody’s credit rating downgraded PPI’s short-term and medium-term debt from Ba1 and Ba3 to Ba3 and B2.

When placed into administration, Polly Peck was found to have an almost complete lack of internal controls at its London office. Asil Nadir was allowed to transfer huge sums from the company's London bank accounts without question.

Ultimately the company collapsed, and charges were brought against Asil Nadir for 18 charges of false accounting and the theft of $48 million, 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.

Many Polly Peck subsidiaries were profitable and were taken over by their respective managements or sold to larger competitors. Mendelson-Zeller Co., Inc. was sold to the Diehl Group (fruit and vegetable brokerage company). Signal Farming was sold to Signal Agricultural Holdings, Inc. (farming produce). PMI Marketing International (food importing, exporting & distribution), was sold in a management buyout to the Prevor Family. Standard Fruit & Vegetable Co. (food distribution) was acquired by its management and Chase Bank.

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 bank 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 [http://news.bbc.co.uk/1/hi/uk/255831.stm] .

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 apologise for misleading Parliament.

Nadir's hotels were seized to pay off tax debts in 1994. His Kibris Endustri Bank was taken over by the Turkish Cypriot central bank in 2002 because it was said to be a danger to the banking system. All that is left is the top-selling Kibris newspaper, the English-language weekly Cyprus Today, and TV and radio stations.

External links

* [http://www.thunderbird.edu/wwwfiles/pdf/about_thunderbird/case_series/a01040005.pdf History of the company]
* [http://business.guardian.co.uk/story/0,3604,946949,00.html Guardian report on recent developments]
* [http://ourworld.compuserve.com/homepages/pntodd/cases/cases_p/polly.htm Suit against Nadir]
* [http://query.nytimes.com/gst/fullpage.html?res=9C0CE5DB143DF931A35753C1A966958260 "New York Times" report from 1990]
* [http://visar.csustan.edu/aaba/pollypeck.htm Original auditors for the collapse of Polly Peck International.]
* [http://scotlandonsunday.scotsman.com/business.cfm?id=984212003 On his self-imposed exile to Northern Cyprus.]
* [http://query.nytimes.com/search/query?ppds=org&v1=SANSUI%20ELECTRIC%20CO&sort=newest Polly Peck's acquisition of Sansui Electronics]
* [http://www.castigator.org.uk/erdal_pn.html Auditors in Cyprus investigate Polly Peck]

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