EXCLUSIVE: U.S. diplomat said ex-BP boss's Turkish partner unethical

LONDON (Reuters) - Mehmet Karamehmet, the controlling shareholder of Genel Energy, the subject of a $2 billion bid from ex-BP boss Tony Hayward's Vallares Plc, has been accused of unethical business practices, according to Wikileaks.

A U.S. diplomatic cable posted on the site said the U.S. embassy in Ankara had advised U.S. firms not to do business with the Turkish tycoon.

"Karamehmet is known to Post (the U.S. embassy) as an unreliable and unsavoury business partner. Post knows of one U.S. firm that was subject to unethical and intimidating tactics, including death threats, to force a settlement of a business dispute favourable to Karamehmet," a cable dated Jan. 15, 2005 said.

The underlying details of the alleged threats were not contained in the leaked cable and a spokeswoman for Cukorova, the unlisted conglomerate of which Karamehmet is chairman, said she had no immediate response to allegations made in the cable.

The U.S. State department did not respond to a request for comment. Vallares declined to comment.

Last month, Vallares agreed to buy Kurdistan-focused Genel Energy for around $2 billion, in an all-share deal that will make Karamehmet the enlarged group's biggest shareholder.

Hayward, who was ousted from BP Plc in the wake of the Gulf of Mexico oil spill, is CEO of Vallares, whose main financial backer ahead of its June flotation was Nathaniel Rothschild.

Following the conclusion of the Genel deal, Vallares is expected to enter the FTSE 100 index of the largest UK companies, which means tracker funds will automatically buy the group's shares.

Karamehmet and Mehmet Sepil, Genel's chief executive who was the recipient of the largest-ever fine levied by the UK Financial Services Authority for insider dealing, will together own around half of the enlarged Vallares's shares.

BUSINESS MODEL

Karamehmet, one of Turkey's richest men, has a record of disputes with business partners and is facing embezzlement charges in Turkey related to loans made by collapsed lender Pamukbank.

Last year, he was sentenced to almost 12 years in jail in relation to the Pamukbank case, before an appeal court overturned the ruling and referred the case back to a lower court.

Karamehmet denies all wrongdoing.

The business model behind Vallares, of offering emerging market companies a short cut to a London Stock Exchange listing, has been criticised by some financial commentators and corporate governance experts.

The company's chairman, former BP Deputy Chief Executive Rodney Chase, says the group's blue-chip management and non-executive directors will ensure corporate governance standards meet the norms expected of London-listed groups.

Vallares plans to issue shares worth around $2.1 billion to pay for the takeover. The deal will mean a windfall of over $250 million for Vallares's founders.

Kurdistan has enjoyed a surge of investment in the past year as relations improve between its regional government and Iraq's national government in Baghdad.

Karamehmet owns 56 percent of Genel, while chief executive Mehmet Sepil owns 29 percent.

(Additional reporting by Evrim Ergin in Istanbul; Editing by Chris Wickham and David Holmes)