Erdogan's Media Grab Stymies Expansion by Murdoch, Time Warner
It wasn’t his first foray into the country. Murdoch’s News Corp., which at the time owned film, television and newspaper companies from North America to Europe and Australia, had bought a stake in one television channel in Turkey in 2006. In 2008, News Corp. had been interested in two other media assets: a national newspaper and its television partner.
By the time of the meeting with Erdogan, those companies had lost as much as $200 million, their financial reports showed. The owner, Calik Holding AS, had hired Goldman Sachs Group Inc. to seek buyers. The bank had done its job. News Corp. was among the potential bidders, in addition to Time Warner Inc. and private-equity firms such as TPG Capital, KKR & Co. and Dubai’s Abraaj Group.
Their quest proved futile. By October, Calik had asked Goldman Sachs to abandon its sales efforts, even as negotiations were underway with Time Warner, according to a person familiar with the discussions. Two months later, Calik sold the media properties to a Turkish company.
The matchmaker: Erdogan, according to a 252-page police account of mobile-phone intercepts, stakeouts and video surveillance, part of a 15-month investigation into government corruption. The newspaper, Sabah, and the channel, ATV, had been allies of Erdogan’s AK Party since 2008, when Calik bought them.
“Sabah is seen as a traditional, respectable broadsheet and the prime minister seems to want to keep it in friendly hands,” said Fadi Hakura, a London-based associate fellow at Chatham House who specializes in Turkey. “Since 80 percent of his voters get their news from the print media, rather than the Internet, controlling the newspaper’s message is critical.”
For Erdogan, battling a barrage of leaks about corruption, the coming weeks are key to a public relations offensive before local elections March 30 and a presidential election in August in which he may run. Already, television channels allied with him cut off opposition speakers in parliament, newspapers supporting him reject suggestions of impropriety and Erdogan himself calls the probe an attempted coup.
The battle for media control stepped up last year, when Sabah and ATV were for sale. While Time Warner and the others worked with Goldman Sachs to hammer out a deal, Erdogan asked his son-in-law, chief executive officer of the company that owned the media properties, to come to his Istanbul home.
Also attending were two businessman-brothers who ran the Kalyon Group, a building firm, police investigators said in the account that sums up the results of their wiretaps and surveillance -- whose conclusions Erdogan says are made up.
One of the brothers was the eventual buyer for the media assets. After that meeting, Erdogan’s transportation minister asked a group of allies in the construction business to raise a pool of money -- eventually at least $450 million. The purpose was to help finance the purchase of the newspaper and the TV channel.
Some of the money was later placed in a black Mercedes van and delivered to a bank run by the newspaper’s owners, the police account says.
In exchange, the account says, the construction magnates expected advance notice of government contracts that they could divide up among themselves. The businessmen were recorded discussing a $2 billion addition to Istanbul’s second airport, a high-speed rail system between Istanbul and Ankara and a 54-kilometer (33-mile) tunnel that would burrow through the hills in western Turkey, all part of at least $70 billion in projects undertaken by Erdogan’s government.
Erdogan himself referenced the police account in a lawsuit, as did Justice Minister Bekir Bozdag and the political opposition in statements on the floor of parliament read into the public record. Excerpts also have appeared in the Turkish media.
The account is separate from a tape released on YouTube last week purporting to reveal a conversation between Erdogan and his son in which the question of how to hide at least $60 million in cash is discussed. Erdogan, 60, says the tape, which has sparked street demonstrations around Turkey, is an “unethical” montage.
The police account is one strand in a series of simultaneous investigations that became public on Dec. 17, when scores of people tied to Erdogan’s government were arrested or detained around the country on charges including gold-smuggling, bribery and bid-rigging.
While Erdogan’s government has attracted record levels of foreign investment to Europe’s fastest-growing major economy, Time Warner’s and News Corp.’s failed attempts to expand their footprints show the challenges in Turkey. Nathaniel Brown, a spokesman for 21st Century Fox Inc., declined to comment. News Corp. split last year into two companies, with the entertainment division falling under the 21st Century name. Keith Cocozza, a spokeswoman for Time Warner, declined comment.
The police account also describes Erdogan’s attempts to control the country’s news media after 11 years as prime minister. At the same time, he is pushing the European Union to reopen membership negotiations.
The scandal drove the currency down to a record low on Jan. 24. And it has energized an opposition that has spent the last decade on the defensive.
Erdogan’s response, in comments to reporters on Feb. 11: “You are making all this up.” He made a joke about the allegation of the pool of funds, comparing it with a swimming pool. He has said in speeches around the country that the overall corruption investigation is sparked by “foreign powers” and by Fethullah Gulen, a former ally turned adversary who is based in the U.S.
Erdogan spokesman Lutfullah Goktas didn’t answer calls to his cell phone. There was no answer at the press office’s landline and no reply to an email sent to the prime minister’s secretariat.
The conversations among the construction magnates, transcribed with dates, times and the mobile-phone numbers of the speakers, show a frantic search by the businessmen to raise the pool of money. They call Erdogan Beyefendi, or The Gentleman, and refer to a 10 percent commission to be paid to Transportation Minister Binali Yildirim. He was in charge of the infrastructure contracts.
Yildirim didn’t reply to two emails and there was no answer at his parliamentary office. He was replaced in December and is running for mayor of Izmir.
Most of the dialog in the wiretap transcripts captured is of the businessmen discussing the fundraising efforts and repeating orders they say were received in person from Yildirim and Erdogan. The police say that Yildirim and Erdogan’s son-in-law, then-Calik CEO Berat Albayrak, avoided using cell phones, which are easier to tap than landlines.
The corruption investigation was carried out under Muammer Akkas, an Istanbul prosecutor who has since been removed from the case. On Dec. 26 he issued a statement saying that the government was interfering with the probe. He couldn’t be reached for comment.
After the first arrests in the early hours of Dec. 17, Erdogan’s government reacted swiftly. Prosecutors were stripped of their files and demoted. More than 5,000 police officers were reassigned. And last month, the government passed a law allowing websites to be shut down without a court order and stipulated that prosecutor investigations must be approved by the government.
The opposition regularly plays tapes and reads from the police account’s wiretap transcripts on the floor of parliament. After party leader Kemal Kilicdaroglu played the tapes on Feb. 11, Erdogan’s lawyers filed a lawsuit against him. The charges included “violating the secrecy of an investigation,” the official state-run news agency Anatolia said Feb. 15.
“Some state prosecutors and Republic’s functionaries have wiretapped phones of a significant number of people with whom the PM converses frequently,” his lawyers said in the complaint. “In doing this, they have exceeded their authority.”
In his parliamentary response to Kilicdaroglu, Justice Minister Bozdag said the “trial process” was turning into a “lynching campaign.”
“To reveal documents which are part of an investigation and protected by secrecy in parliament is a crime,” Bozdag said. “Even if these were recorded legally, to voice these under the roof of parliament, did not suit -- and wasn’t nice to -- our parliament, our politics, our legislature.”
In addition to the financial details being discussed, the conversations in the transcripts pull back a curtain on the relationships between some of Turkey’s richest men.
They joke about one businessman who felt unwell after being told of the sum of money he was expected to contribute and was revived with three blood-pressure pills. They argue among each other, discuss tax obligations and, in often profane language, talk about the implications of their actions.
For instance, a Sept. 21 transcript in the police account features Mehmet Cengiz, owner of construction group Cengiz Insaat AS, and Nihat Ozdemir, chairman of Limak Holding AS, both part of a consortium that won a contract for an airport outside Istanbul that will cost about $14 billion to build. They discussed the stress they were under, trying to meet a deadline for the money delivery.
“Me, I am like a corpse,” said Ozdemir, according to the transcript. “I’ve got it up to here -- it’s torture.”
Cengiz sympathized with him and they talked about what would happen if the matter became public.
“These people don’t know -- Turkey will be rocked,” Ozdemir said.
Cengiz didn’t reply to several calls and texts to his cell phone, or to emails.
Ozdemir didn’t respond to two emails sent to him at an address provided by his assistant.
By the time of Murdoch’s 2012 expression of interest in ATV and Sabah, with a daily circulation of about 319,000, the properties were owned by a Calik unit called Turkuvaz Media Group.
Calik had paid $1.25 billion in April 2008 to buy the newspaper and TV station. Two state-run banks lent $750 million for the acquisition. The remainder of the price came from the buyer and a Qatari partner.
“Responsibility and ethical behavior will form the basis of our broadcasting policy,” Calik said after the purchase. “Sabah and ATV will continue to provide impartial and independent news to the public.”
The opposite happened, according to Freedom House. The once-mainstream newspaper became a mouthpiece of the government, the Washington-based watchdog group said in a February report, citing instances where Sabah and other government-friendly newspapers ran exactly the same headline.
It wasn’t the first media property to be taken over by Erdogan’s supporters. The newspaper Milliyet was sold in 2011 to help raise money for a $3.8 billion tax fine levied by the government against the owner.
The buyer, the Demiroren Group, which runs a gas distribution business and a shopping mall, appointed former Erdogan media adviser Akif Beki as head of the company’s media group in May 2012. Erdogan later said at a press conference that he had supplied the recommendation.
“Most media companies are subsidiaries of much larger corporations,” Mert Yildiz, a Burgan Bank Group senior economist, said on a personal blog on Feb. 15. “The reward for supporting the government could be business contracts, but the punishment for not supporting it is NOT ‘no contracts;’ it is getting tax fines and possibly facing bankruptcy.”
By May 2013, almost 80 percent of Turkish newspapers supported Erdogan, Yildiz estimated. At least 59 journalists were fired or forced out by their newspapers for covering the protests over the development of Gezi Park in central Istanbul last year, the Committee to Protect Journalists said Feb. 12. Another 40 journalists are currently jailed, the committee said. It’s the highest number in the world.
Calik’s purchase of Sabah proved expensive as economic growth slowed during the global recession. Even though the group had about one-fifth of Turkey’s television and newspaper advertising market, in April 2008 Fitch Ratings Ltd. downgraded Calik’s ratings, citing the Sabah and ATV purchase.
In early 2009, Calik was downgraded again by Fitch to B-, defined as “highly speculative” with “significant credit risk.” The media group at the company lost $47.3 million that year. It would ultimately lose $322 million by the end of 2012, according to Calik’s annual reports.
While Goldman Sachs was seeking a buyer, the real deal-making was going on under Erdogan’s roof. On July 21, 2013, investigators said in the transcript, Erdogan invited Calik’s Albayrak, his son-in-law, as well as Omer Faruk Kalyoncu and Orhan Cemal Kalyoncu, the brothers who run Kalyon Group, according to the police account.
Albayrak didn’t respond to text and voice messages left on his cell phone, nor to an email message seeking response from Sabah, where he is now a columnist. His brother, Serhat Albayrak, who was previously the senior executive in charge of the media group at Calik, didn’t respond to a voicemail or a text message left on his cell phone. Calik Holding didn’t respond to an email sent to its corporate email address.
A month later, Omer Faruk Kalyoncu, the deputy chairman of Kalyon Insaat Sanayi & Ticaret AS, the full Turkish name of Kalyon, set up a company. Subsequently, he personally provided it with $171 million of capital, according to Istanbul’s commercial registry office. The police account says Omer Faruk Kalyoncu was asked to create the company by Erdogan. Later renamed Zirve Holding, it was the ultimate buyer of the media assets.
Omer Faruk Kalyoncu’s assistant said by telephone that Kalyoncu didn’t want to be interviewed or comment on the acquisition of Turkuvaz Media Group or on Albayrak.
Orhan Cemal Kalyoncu asked that questions be faxed to him and then didn’t respond.
That wasn’t Erdogan’s only July action on the media properties. The police account says he arranged a meeting with Cengiz, one of the partners in the airport project. Cengiz later spoke with other construction magnates, including Ozdemir, the chairman of Limak, and Celal Kologlu, a board member of construction firm Kolin Insaat AS. Like Cengiz and Limak, Kolin is part of the consortium building the third airport near Istanbul.
Kologlu hung up the phone when a reporter identified himself. He didn’t answer his phone on at least three other occasions.
Kologlu also met with Yildirim, the account says. He was still transportation minister at the time. Kologlu, Cengiz and two other businessmen were taped talking to each other in the days afterward, according to the transcript.
“The minister is saying that The Gentleman gave me a duty and I am going to solve it,” said Kologlu. “You get a duty like this once in 40 years, and you guys have to do this.”
The next day, Cengiz called Ibrahim Cecen, chairman of another construction group, IC Holding AS.
“What’s he going to give me? If he gives me something, then aye, aye, your order is my command,” asked Cecen. He eventually contributed $100 million to the pool of money and said he’d add another $50 million if he could be included in an airport project, according to the police account.
Cecen, reached on his mobile phone, referred to a statement he made Dec. 27 in which he denied accusations in tapes and media reports that he had given $100 million to acquire Turkuvaz Media Group. “These are totally false, ungrounded, unsubstantiated and materially impossible,” the statement said.
By September, the transcripts show, the businessmen were under pressure: Yildirim’s chief of staff had been calling them regularly, reminding them to stick to the payment schedule.
On Sept. 17, Ozdemir, the chairman of Limak, and Cengiz spoke about a meeting in which Ozdemir had seen Erdogan, according to the transcripts in the police account.
“The prime minister was also there,” said Ozdemir. “He told me, ‘Tell Cengiz you are going to solve this job.’”
On Oct. 2, Cengiz called the owner of Calik and asked him for an armored car, the police account says.
On the morning of Oct. 8, police tracked the black Mercedes Vito passenger van as it drove from Cengiz’s company headquarters, according to photographs of the vehicles included in the police account. It went to a state-run bank. Forty-five minutes later, the vehicle drove to a bank owned by Calik.
By this time, Time Warner had bid $1 billion to buy just the television channel, according to a person familiar with the offer who asked not to be identified because he was discussing private financial information.
Abraaj, the Dubai private equity firm, had also placed a bid. News Corp.’s offer had been rejected as uncompetitive, according to another person familiar with the offers. Abraaj declined to comment. Fiona Laffan, a Goldman Sachs spokeswoman in London, declined to comment.
On Dec. 19, Turkey’s Competition Authority approved Zirve’s purchase of Sabah and ATV. The statement was the first public announcement of the deal.
Albayrak, Erdogan’s son-in-law, resigned his job at Calik on Dec. 31, according to a company statement.
He has since become a columnist for Sabah. His first column, published on Feb. 10, was headlined “New Turkey, New Economy.”
“From now, politicians, bureaucrats and everyone else needs to be in harmony with the new Turkey,” he wrote. “Or they need to stop being a wedge.”
To contact the reporters on this story: Mehul Srivastava in London at email@example.com; Benjamin Harvey in Istanbul at firstname.lastname@example.org; Ercan Ersoy in Istanbul at email@example.com
To contact the editor responsible for this story: Andrew J. Barden at firstname.lastname@example.org