International -- Finance: DEALS
LAND OF MILK AND HONEY--AND EQUITY (int'l edition)
The Mideast peace process may not be moving along as quickly as many would like. And limited Palestinian self-rule didn't end terrorism against Israel. But that hasn't stopped some very rich, very savvy investors from making large equity investments in Israeli industry. Among them are Laurence Tisch, chairman of Loews and CBS; Charles Bronfman, co-chairman of Seagram; and Roy Disney, nephew of Walt.
Disney in Israel? You bet. Roy Disney's private investment company, Shamrock Holdings Inc., last month paid $252 million for a 22.5% controlling interest in Koor Industries Ltd., a conglomerate that is Israel's biggest industrial concern. It's the largest foreign investment ever made in the Israeli economy. "It's no longer just the sentimental investor who is putting his money here," says an investment banker who was close to some recent deals.
NEIGHBORLY. The combination of a strong economy and a weak equity market is what's luring the big money. In the past five years, the economy has grown by 33% in real terms, and real gross domestic product is forecast to climb an additional 5% in 1995. The Israeli stock market soared 158% from 1992 through January, 1994, but since then, higher interest rates, inflation, and insider-trading scandals have sent prices down more than 40%.
The fall in stock prices has cut the average price-earnings ratio to 11, about half what it was at the peak. "The stock market is depressed, but the economy is in good shape, and the market will ultimately reflect the values that are really in the economy," says Shamrock President Stanley P. Gold.
Koor's leading lines include telecommunications, chemicals, electronics, and building materials. The company, says Gold, is "inclined to do business with its Arab neighbors," which could pay off handsomely if peace comes to the region. Shamrock paid 20% above the market price for its Koor stock, and Gold says he would consider buying more. Koor is Shamrock's second-largest investment after its Disney stock.
Also piquing foreign investors' interest is a government-sponsored privatization program. In quick succession, the Israeli government sold over $650 million in assets in just the past two months. The government's target for 1995 is to sell $1.5 billion in state assets, and it hopes to sell an additional $5.8 billion over the next two years. The latest state-owned company to go on the block is Israel Chemicals Ltd., which is looking to sell a 22% stake for at least $200 million. The government has already sold a 24.9% interest in the chemical company to Shaul Eisenberg, an international dealmaker, for $231.5 million. Eisenberg outbid Ted Arison, founder of Carnival Cruise Lines Inc.
Foreign investors long ago discovered Israel's high-tech companies, many of which are world leaders in their fields. Hedge-fund king George Soros made a $60 million investment in Indigo less than two years ago and has quintupled his money.
Investor interest now extends to less glitzy companies. Earlier this year, Renaissance Group, a partnership that includes Bronfman, Tisch, and a number of Goldman Sachs partners, paid $71 million for a 25% stake in Shikun U'Pituah, once the state-owned construction company. Late last year, Renaissance paid $100 million for a 33% stake in Paz Oil Co., Israel's largest fuel company. Bronfman already holds investments in a number of leading Israeli companies--including Teva Pharmaceuticals, ECI Telecom, and Osem--through his personal investment company.
BANK SHOTS. Even bigger deals are in the offing. Two separate investor groups have lined up to buy a controlling stake in state-owned Bank Hapoalim Ltd. One group includes Arison and Renaissance. Another includes Bear, Stearns & Co., the U.S. investment bank. One late entrant, a group headed by Canada's Ghermezian brothers, who have extensive real estate holdings in Canada and the U.S., dropped out. The 25% interest in the country's largest bank could go for $500 million.
Not every bidder becomes a buyer. Banker Edmond Safra, who controls 28% of Republic New York Corp., was negotiating to buy Bank Leumi, Israel's second-largest bank, but pulled out. Days later, Las Vegas hotel magnate Sheldon Adelson said he might bid for the bank and for state-owned El Al Israel Air Lines Ltd.
In shedding state-owned companies, Israel is burying its socialist past. "Israel has begun to do things that allow businesses and investors to flourish," says Gold. If this vanguard of capitalists hits pay dirt, others will soon find their way to the Promised Land.By Neal Sandler in Jerusalem, with Nanette Byrnes in Los Angeles