For the first time ever, U.S. investor Warren Buffett is visiting Israel. He arrived in the Jewish state on Sept. 17 to tour Iscar Metalworking (IMC). His Berkshire Hathaway (BRK) paid $4 billion for an 80% stake in the then family-controlled cutting tools company in May—just weeks before war broke out on Israel's northern border with Lebanon.
The war forced Iscar to shut down its main plant in Tefen, an industrial park just 7.5 miles south of the Lebanese border, for several days before a cease-fire was declared on Aug. 14. During the month-long conflict, more than 4,000 Katyusha rockets landed in northern Israel.
Despite the unexpected turn of events, Buffett says he has no regrets about his investment. "Most of the time Israel is no more dangerous than the U.S.," Buffett told reporters during his whirlwind tour of Iscar's headquarters on Sept. 18—although he acknowledged that wasn't the case during the war. Buffett's investment in Iscar is Berkshire Hathaway's first foray overseas.
NOT SHOPPING. But the "Oracle of Omaha" says he wants to expand further outside the U.S. "We are open to looking at businesses in most places," Buffett says. One area of interest: utilities. In March, Berkshire's MidAmerican Energy Holdings bought U.S. utility PacificCorp from Scottish Power (SPI) for $5.1 billion.
The Israeli visit by Buffett and his partner, Charlie Munger, isn't a shopping trip, however. Buffett says that so far no other Israeli companies have approached Berkshire Hathaway for investments and that he'd be looking for a company as profitable as Iscar Metalworking.
The closely held cutting tools company was founded in the early 1950s by Stef Wertheimer, now 80, and is run by his 54-year-old son Eitan, who negotiated the deal with Berkshire Hathaway. Although results of the company are not made public, Israeli financial sources estimate that IMC's net income last year was $440 million on revenues of $1.4 billion.
FAMILY VALUES. Its biggest competitor, Sweden's Sandvik, last month reported net income of $276 million on revenues of $2.46 billion, of which nearly a third came from its cutting tools division. By teaming up with Buffett, the Wertheimer family has ensured that IMC's financial results will remain buried deep inside Berkshire Hathaway's financial reports (see BusinessWeek.com, 5/8/06, "Buffet Takes a Cut of Iscar").
Buffett and Munger met the older Wertheimer for the first time on their arrival in Israel. The Wertheimer family is committed to using its business success to promote Middle East peace through industrial parks modeled after Tefen, Iscar's home base. Fully a third of IMC's 6,000 employees are based at Tefen, where most of its research and development and a substantial part of its production take place.
In the past decade, the company has expanded rapidly and now counts more than 60 subsidiaries worldwide, including plants in Europe and Asia. Its precision carbide tools are used in the automotive, aerospace, and die and mold production industries.
On his 36-hour trip, Buffett also met with Israeli Prime Minister Ehud Olmert and Israeli business leaders.
Sandler is a correspondent for BusinessWeek in Jerusalem
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