Buffet Buys 80% Stake In Israeli Company

[RPankn]

Iscar boss: Buffett deal shows economy is robust

Iscar chairman says acquisition of 80 percent of dad's company by Buffett's Berkshire Hathaway attests to strength of Israeli economy

Tani Goldstein

Iscar Chairman Eitan Wertheimer said Saturday that the acquisition of 80 percent of his father's company by investment mogul Warren Buffett for USD 4 billion attests to the strength of Israel's economy.

The official declaration of the deal was made at the annual meeting of Buffett's insurance and investment company Berkshire Hathaway Inc being held in Omaha, Nebraska, where 23,000 shareholders congregated to hear Buffett speak.

“As a member of the Berkshire family we'll have the benefit of a strong platform that's committed to continuing our historical success,“ said Wertheimer. “This transaction is not only significant for our company, our customers and our employees, but also for our industry, and for the State of Israel. We are gratified by Berkshire's investment in the group, and proud of what we have achieved since Iscar's founding more than 50 years ago by my father Stef Wertheimer, who will continue to lend his vision to the group. We are looking forward to a long and profitable partnership with Berkshire Hathaway.“

“This acquisition ties the knot between Berkshire Hathaway, one of America's outstanding businesses, and IMC, an extraordinary industrial company with a truly global reach, and a presence in the world's most dynamic regions and economies,“ said Jacob Harpaz. “We believe that our partnership with Berkshire will further strengthen our position in the North American market and worldwide and allow us to continue the phenomenal growth that we have experienced over the past 50 years.“

Wertheimer said that Iscar will keep its profit records confidential despite being purchased by Buffett's Berkshire which appears on the New York Stock Exchange. "Buffett's company is so large that one cannot identify in its reports even details that everyone in Israel knows," he said.

He said Iscar's decision to conceal market details is out of fear that such move might expose the secret of its success to competitors.

Berkshire Hathaway Inc., said it would buy 80 percent of Iscar in a transaction valuing the closely-held tool firm at USD 5 billion. The Wertheimers will earn USD 4 billion from the deal and hold on to 20 percent of the company's assets.

Estimates are that the transaction will earn the State's coffers close to USD 1 billion. Wertheimer said most of the USD 3 billion he and his father will earn will be invested in new ventures, while the rest of the cash will be spent on "projects for the country and the region" and his father's philanthropic work.

Iscar is the world's second largest metalworking tools manufacturer with an annual turnover estimated at USD 1 billion. About 2000 employees work at its headquarters in Tefen, where an average 15 percent annual growth has been registered every year.

The deal is the third largest acquisition ever carried out by Buffett outside the United States.

(05.06.06, 15:11)


www.ynetnews.com/articles/0,7340,L-3247640,00.html

[RPankn]

Last update - 00:49 07/05/2006

Warren Buffett to acquire Israeli firm for $4 billion

By Guy Rolnik, Moti Bassok, and Aluf Benn, Haaretz Correspondents, and AP

In what is perceived to be a vote of confidence in the Israeli economy by one of the world's wealthiest entrepeneurs, billionaire investor Warren Buffett is acquiring 80 percent in Iscar Metalworking Companies, a property of the Wertheimer family, for $4 billion in cash. The move represents Buffett's first major acquisition of a company outside of the United States.

The deal, which illustrates Iscar's net worth to be near $5 billion, puts Stef and Eitan Wertheimer at the top of the list of Israel's richest families.

Eitan Wertheimer told Israeli reporters in Omaha, Nebraska, where the deal was signed, that he updated Prime Minister Ehud Olmert and Finance Minister Avraham Hirchson on the progress of negotiations that lasted several months.

"This deal is a certificate of honor for the Israeli economy," Eitan Wertheimer said. "Other big-time investors will come in the wake of Buffet."

(Analysis: Warren Buffett's ultimate expression of trust in Israel's economy)

Iscar is a private company which manufactures advanced knives and cutting tools and is internationally renowned for its line of milling and turning products. The company's factories are situated in the Tefen industrial zone in the Galilee which was founded by Stef Wertheimer.

Iscar also owns and operates factories in countries around the world.

Buffett, who is chairman and chief executive officer of the investment firm Berkshire Hathaway, believes in the quality of Iscar's management team, all of whose members are expected to remain in their posts, including President and Chief Executive Officer Jacob Harpaz, a press release said.

When asked if Israel's tenuous geopolitical state served to dissuade him from going through with the deal, Buffett replied: "There's a danger anywhere in the world. We found that out with the World Trade Center." [Ironic Buffett would say this given that his name turns up in connection with suspicious details concerning Sept. 11th.]

Buffett told Israel Radio that he believes in the State of Israel, and that he decided to purchase the controlling interest in Iscar due to the high quality of employees.

Eitan Wertheimer, the son of the company's founder Stef Wertheimer and who is credited with leading it to new heights of success, will also remain with Iscar in his capacity as chairman of the board.

"This is great news and a huge gift to the State of Israel," Prime Minister Ehud Olmert told Eitan Wertheimer on Saturday. "We tip our hats to you, both personally and on behalf of the entire state."

"This sale is a great momentum boost for the economy and I'm sure that it will bring additional economic benefit," Olmert said.

Wertheimer thanked the prime minister, saying "Warren Buffett's vote of confidence represents an important declaration for the state, and just as they spoke about the Balfour Declaration until now, they will mention the Buffett declaration."

Olmert plans on making contact with Buffett during the afternoon Sunday.

Buffett's fortune ranks him as the second wealthiest person in the world behind Microsoft founder Bill Gates. He is also considered to be the most talented investor on the globe.

Buffett and Eitan Wertheimer will make a joint appearance Saturday before an audience of close to 25,000 who have gathered for Buffett's annual investors conference in his hometown of Omaha, Nebraska.

The conference - which brings together tens of thousands of would-be investors, including Berkshire Hathaway stockholders - is thought to be one of the year's most anticipated business events of the year.

Patrons flock for a rare opportunity to hear Buffett, who is not wont to appear in public, in the hope to receive sound investment advice from the reclusive billionaire.

Hotels in Omaha are fully booked for this weekend as visitors, who have given the conference the moniker "capitalism's Woodstock," reserved rooms many weeks in advance.

In his statements, Buffett is expected to express his confidence in the Israeli economy.

Investors all over the world closely follow the progress of companies in which Buffett invests as well as his statements and opinions regarding long-term global economic projections and analysis.

Nicknamed "the Oracle of Omaha," has for years stuck to his prediction that the dollar would weaken. Buffett even made a significant investment in the steel market - silver, that is.

In 1998, Buffett purchased 129.7 million ounces of silver at six dollars an ounce. Two weeks ago, the price of silver reached a 23-year high of 14.68 dollars per ounce.

Although Berkshire Hathaway stocks have significantly risen since Buffett took the reins of the company in 1965, it has lagged behind the S&P 500 since February 2004.

Berkshire already owns a diverse mix of more than 60 companies, including insurance, reinsurance, carpet, jewelry, furniture, restaurants and utility firms. And it has major investments in such companies as H&R Block Inc., Anheuser-Busch Cos. and Coca-Cola Co. [And a corporate commuter jet firm, which didn't have to comply with mandatory grounding orders on Sept. 11th, and FAA air traffic controllers in Ohio apparently felt comfortable enough to ask to give visual info on Flt. 93, despite a military C-130 being in the area.]

Conversely, Iscar's investments are far less known even in Israel given that the company is privately owned and does not sell its shares on any stock exchange. In addition, the Wertheimer family is tight-lipped on all matters relating to their finances.

Iscar manufactures tools for slicing metal which are used by companies which employ computerized lathing methods. Iscar is thought to be a world leader in the field.

Israeli analysts believe Iscar earns over $500 million per year. The company's sales reached over $1 billion in 2005 and analysts anticipate figures for the coming year showing an increase.

In recent years, speculation has persisted that Iscar would begin selling its shares on the New York Stock Exchange. That scenario, however, has yet to unfold.

What began 30 years ago as a modest welding shop in Nahariya headed by Stef Wertheimer has become a profitable venture for many years running. In the early 1990s, IDB Holdings purchased a 25 percent minority stake in the company. As a result, the company's financial results have since been revealed.

Although the numbers demonstrated Iscar's extraordinary profitability, the Wertheimer family aimed to reacquire the 25 percent share sold to IDB so that its earnings could remain out of public view. IDB, which was then owned by the Recanati family and under the management of Dov Tadmor, refused, triggering a bitter feud between the two giants.

In an extraordinarily shrewd financial move, Eitan Wertheimer began buying up large amounts of IDB stock as a means of putting pressure on IDB's holding company. The move paid off, and IDB sold back the 25 percent to the Wertheimers.

To add insult to injury, the state subsequently sued Tadmor and IDB executives for concealing information from the public in presenting Iscar reports as "IDB reports." Even though Tadmor was convicted and sentenced to community service, his conviction was overturned by an appeals court.

As a result of the buyback, the Wertheimer family regained 100 percent controlling interest in Iscar. Over the course of the last decade, Iscar has continued its rapid growth thanks to the expansion of the global economy as well as the demand for sophisticated lathing machinery and, by extension, cutting tools of the kind Iscar manufactures.

Iscar's high profitability and the Wertheimer's 100 percent stake have made Stef and his son Eitan one of the richest families in Israel. Eitan Wertheimer is near the top of TheMarker's 500 richest Israelis list with a fortune estimated at billions of dollars.

The sale of the company to Buffett is expected to catapult the Wertheimer's to the top of the list.

"We are delighted to partner with the Wertheimer family and IMC's current management, led by Eitan Wertheimer and Jacob Harpaz," Buffett said in a press release issued to the media early Saturday. "As a truly international business, IMC is a top performer in its industry, with exposure to European, Asian and Latin American markets, as well as significant opportunities for growth as it continues to penetrate the North American market."

"My partner, Charlie Munger, and I have been impressed by IMC's simple and profitable business model. With this acquisition, we have the benefit of investing in a stable business with very significant growth prospects."

"As a member of the Berkshire family we'll have the benefit of a strong platform that's committed to continuing our historical success," said Eitan Wertheimer. "This transaction is not only significant for our company, our customers and our employees, but also for our industry, and for the State of Israel."


www.haaretz.com/hasen/spages/712876.html

[RPankn]

Statement by Stef Wertheimer,

Chairman, Board of Directors, ISCAR, Ltd.

at the June 24, 2002 Hearing of the

United States House Committee on International Relations

I wish to thank Chairman Henry Hyde for having the foresight to initiate this hearing, as well as Ranking Democrat Tom Lantos and Chairman Gilman. I am also thankful to the members of the Committee who have allowed me to testify before them. I am honored to be here.

This morning could prove to be an historic session. It could change the course of events in my troubled region of the eastern Mediterranean. Congressman Hyde has been voicing the need for a new bold approach to certain parts of this area. He has used the term "a new Marshall Plan" to describe his vision. As all of you in this room know, that plan changed the course of the 20th century by rebuilding Europe after WWII. It may be in your power to transform another region of great strategic importance to the U.S.

I am here to make a few observations and, perhaps, to expand the concept that Congressman Hyde has envisioned. He and I – and I know many others – share an interest in calming my region. I believe there is only one solution: a vigorous plan for industrial development that will be enhanced sometime in the future by a political solution to the Arab-Israeli conflict.

What is needed is not continuing aid, but rather the willingness of the U.S. and other OECD countries to make a limited-term investment in the future of the eastern Mediterranean. Unlike social welfare, the proposed plan will make people self-sufficient rather than continually dependent. It is a program that will offer hooks rather than fish.

My testimony is based on 50 years of successful entrepreneurship in a developing region. I started my own metal tool cutting company, ISCAR, Ltd., in 1952, not long after the end of the Israeli War of Independence. It is now one of the two leading companies in its field in the world, with annual revenues of $1 billion. I have also built four industrial parks in Israel that generate an additional $1 billion, much of which derives from the 150 emerging industries that have been launched in the parks’ incubator spaces.

My own experience allows me to make two points with conviction. First, since my own corporation grew during times of war on Israeli soil, I can vouch that we need not wait for a peace agreement before embarking on this plan. We should begin as soon as possible.

Second, having launched my company from a remote area in the Galilee, I can testify that it is possible for the eastern Mediterranean to be competitive in the global market.

Redrawing the Map of the Middle East

I use the term "eastern Mediterranean" deliberately. It is time to redraw the map of the Middle East. For far too long, political maps have defined this region. We now need a new economic map, one that will distinguish the oil-producing states in the Gulf from the non-oil states in the east.

Oil wealth has also contributed to some of our most menacing problems today. Let me mention three in particular.

First, oil riches have created an enormous disparity in the wealth of neighboring states of this region. For instance, Kuwait ’s GDP per capita is about ten times that of Jordan’s. It is almost inevitable that unrest will result from such gross economic inequality. Still worse is the fact that oil revenues have generally been invested not in the region but rather in the West. Very high unemployment exists now in parts of the region. As a result – and I quote from UNDP’s recently published Arab Human Development Report 2002 – "while it is shocking, it is not surprising that…more than half of young Arab people surveyed wanted to emigrate to other countries, mostly to industrialized countries outside the region."

Second, Saddam Hussein, Osama Binladin, and 15 of the 19 who carried out the September 11 attacks come from Middle Eastern oil-producing countries that support a xenophobic form of religious education.

Third, the Arab oil-producing states have turned a blind eye to their brethren, the Palestinian refugees. They offered them neither shelter nor any support meaningful enough to create a secure and stable society.

For a solution, we should turn our sights to the Old Levant countries. Concen-trate first on Jordan, Turkey, and Israel, and then expand the program to include the Palestinians, the Lebanese, and other neighbors seeking a higher standard of living.

Why Jordan, Turkey, and Israel? Lacking natural resources, these three have the greatest potential for economic success because they cannot expect idle riches. Israel has succeeded precisely because it lacks oil. To reach its relatively high GDP per capita, it has had to rely on hard work, technological and other innovations, and export-driven industries – the same ingredients that underlie the recent success of Ireland, Finland, Singapore, Taiwan, and South Korea. In addition, Jordan, Turkey, and Israel have been oriented to the West and wish for stronger ties with the EU and NASTA.

The Middle East was once a bustling economic region. No longer. The above-mentioned Report, written by Arab intellectuals, frankly outlines the distressing situation. It claims that the Arab world (defined as 22 countries of 280 million people) now has the lowest growth of per capita income in the world, with the exception of sub-Saharan Africa. The Report cites three reasons for this: lack of political freedom, the repression of women, and inadequate knowledge of the world beyond.

There is a glaring omission in this otherwise excellent document. Nowhere does it stress the need for industrialization. Yet industry is the engine of economic stability, a vehicle by which a nation can quickly become empowered.

Consider this: the economic success of Taiwan, Singapore, Hong Kong and South Korea has been achieved in a matter of decades. With post WWII American aid, they industrialized and become self sufficient in the process. These Asian Tigers had few natural resources, yet their success is indisputable. Another example: since the fall of the Berlin Wall, one can see the same success unfolding in some of the Eastern European nations. Nothing could better demonstrate the soundness of the original Marshall Plan’s concept. The approach can be copied.

The Tefen Model

The main way that I can contribute to Congressman Hyde’s vision for a Marshall Plan is through Tefen, my model of an industrial park that has been extremely successful in Israel. Its formula could be exported. Today there are four parks in Israel based on this model, and a fifth will soon be constructed in the north. In addition, it will also soon be tested for the first time on foreign soil: in Gebze, Turkey.

Only two years ago the model was to be built in Gaza. I was engaged in a partnership with the Palestinians to build twin parks, one near Rafah, the other just across the border in Israel. Leaders of both Israel and the Palestinian Authority approved the plan. The Harvard University School of Design completed a planning study of the area. Unfortunately, however, the second Intifada has postponed that project.

The Tefen model stresses creativity through an unusual combination of aims: to provide high quality products to a global market, to advance entrepreneurial education and industrial training, to foster new indigenous industries, and to showcase art and culture. To these ends, the four parks all have incubator spaces, educational and training facilities, museums, and sculpture gardens.

As in any business enterprise, Tefen’s success can be quantified in numbers. The model park and its two replications in the Galilee and one in the Negev have launched 150 new firms that currently generate $1 billion in sales and have given rise to 5,000 new jobs. They prove that this part of the world can compete successfully in the global market.

A Proposed Pilot

A Marshall Plan for this region will be an ambitious undertaking. Why not test the concept first in one specific place? Jordan, a relatively small nation with a highly literate population of 5 million, would serve as an ideal showcase. His Majesty King Abdallah and his late father have been close allies of the U.S., and Jordan’s continued stability is vital, both for this region and for the West.

An expenditure of $1 billion over five years (in addition to the current U.S. funding) in industrial development, infrastructure, and technical education would bolster the economy and increase its GDP significantly in a short period of time, similar to what happened in Europe with the Marshall Plan. The plan is to build five industrial parks in diverse areas of the country and to assist in establishing industrial facilities within those parks. They will change the pattern of poverty and unemployment and prove that industry can pave the way for economic stability. The funds should be managed and dispensed by a U.S. or international institution. A preliminary plan and budget for Jordan is attached.

Jordan’s stability is critical for this region as well as for the West. If it does not receive the funds to enable it to increase its standard of living, it could well cease to exist in the near future.

Expansion of the Plan

Once Jordan is deemed to be a success, then the Marshall Plan could be extended to other countries in the region: Turkey, the Palestinian Authority, the developing communities of Israel and, eventually perhaps, Egypt and Lebanon. One hundred parks of the Tefen model would transform this region, enhance the quality of its workforce, increase its standard of living, and provide the environment for more democratic societies to emerge

Benefits to the U.S. and Other Participating Donor Countries

The Middle East has a way of besmirching the entire world with its conflicts. It is of global interest to quiet this area. A Marshall Plan for this area would produce a variety of benefits:

A reduction of terrorism worldwide. The majority of the world’s terrorists hail from this region. Terrorism thrives in areas of poverty. Narrowing the gap between the financial status of neighboring countries and enhancing a population’s standard of living automatically changes attitudes. Job opportunities and a higher standard of living for people in this area will reduce the power that terrorist groups offer to the deprived masses.

Continued free flow of oil to the West. Developed countries are particularly dependent on oil. By raising the standard of living in the region’s non-oil-producing countries, the Plan will reduce some of the glaring financial injustices that produce turmoil here and thus ensure the free flow of oil.

Enhanced trade opportunities for the West. To develop this region will require the expertise and equipment of the industrialized countries. The West has much to offer in terms of its know-how and its goods.

Industrialization of these countries will enable American companies committed to buyback agreements to find sources for purchasing.

A foreign policy victory. While economic disparities are not the only issue plaguing this region, an ambitious program of industrial development in the eastern Mediterranean will bring positive political, economic, and social results. This will prove to be the best investment for the future.

In summary, I would welcome the support of this Committee, which would greatly enhance the prospects of peace. A long-term solution to the problems besetting us now rests on narrowing the gap of wealth distribution.

Industrialization is the key to achieve this.


www.israelnewsagency.com/stefwertheimer.html