IBM Sued by Mexico’s Iusacell for $2.5 Billion Over Deal

International Business Machines Corp. (IBM) was sued by Iusacell SA, Mexico’s third-biggest mobile-phone provider, for $2.5 billion in lost profits tied to a 2010 deal that failed. IBM claims the lawsuit is intended to avoid arbitration over the contract.

Iusacell consulted with IBM in connection with a multiyear plan to increase market share and revenue, the company said in a heavily redacted complaint filed today in Manhattan federal court. Iusacell alleged IBM made fraudulent misrepresentations that caused it to suffer damages and lose profits.

“IBM both knowingly misrepresented and wrongfully concealed from Iusacell material facts both before and during the parties’ relationship,” Iusacell said in the complaint. The public version of the filing doesn’t explain the alleged wrongdoing.

IBM said today that Iusacell and IBM Mexico entered into a “long term contract under which IBM Mexico made significant investments in Iusacell’s business operations” that resulted in “major improvement to Iusacell’s information technology infrastructure and growth in Iusacell’s revenues.”

The matter is in arbitration, said Doug Shelton, a spokesman for Armonk, New York-based IBM.

Iusacell, co-owned by billionaire Ricardo Salinas and by Grupo Televisa SAB (TLEVICPO), the country’s largest broadcaster, has struggled to compete with larger rivals such as America Movil SAB (AMXL) and Telefonica SA. (TEF) The company had 8 million subscribers at the end of 2013, or about 8 percent of the market.

Televisa recorded a fourth-quarter loss from joint ventures of 4.74 billion pesos ($363 million), mostly to write down the value of Iusacell. It acquired its 50 percent stake in the company from Salinas for $1.6 billion in 2012 and invested an additional 1.59 billion pesos last year.

Salinas is Mexico’s fourth-richest person and No. 129 on the Bloomberg Billionaires Index, with a net worth of $9.1 billion. He has sued to block Mexico’s stock exchange from removing his retail company from the benchmark index and the government’s plans to auction off wireless airwaves.

Dan McCosh, a spokesman for Salinas’s group of companies, declined to immediately comment.

The case is Iusacell SA de CV v. International Business Machines Corp., 14-cv-02697, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net; Alex Barinka in New York at abarinka2@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net David E. Rovella, Crayton Harrison

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