Global Agenda: Big deal

It is impossible to exaggerate the importance to the Israeli economy of the Iscar deal.

By PINCHAS LANDAU
May 12, 2006 02:04
3 minute read.
warren buffett 298.88

warren buffett. (photo credit: Associated Press)

It is impossible to exaggerate the importance to the Israeli economy of the deal whereby Warren Buffett bought Iscar from the Wertheimer family. Period. One of the many implications of this statement is that the deal, and the media circus it triggered, provides an excellent example of an exception to the rule put forward in last weeks column - that the more media attention awarded to a particular topic, the less important that topic must be. However much was written and said about the deal this week, was entirely justified as regards quantity. As for the quality, that was inevitably uneven, but that's par for the course in this kind of development. For instance, the media discussion as to whether the price paid ($4 billion in cash) was too high, too low or about right, was perfectly in order and the various views offered were legitimate. Indeed, given the paucity of information about Iscar and its actual profits, a broad spectrum of assumptions and, hence, of conclusions was inevitable. In another sense, the explosion of media coverage of Iscar was compensation of sorts for the fact that the company, the entire Wertheimer empire and, above all, the Wertheimers themselves, have had virtually no media exposure for the 54 years of Iscar's existence. Nor does this reflect badly on the media; rather it is the result of the obsession of Stef, and then of Eitan Wertheimer, to avoid any public exposure of any sort, for themselves or their company. Until last Friday. Which brings us back to our starting point, the importance of the deal. There are so many elements involved that it's difficult to put them all in context. Just in terms of macro-economic policy, the sheer size of the acquisition has a direct impact on both monetary and fiscal policy. The Treasury will take a cool $1 billion in tax from the purchase price (and give the purchasers tax free status for the next 10 years under the Investment Encouragement Law), which is a large enough windfall for everyone to get into the argument about how to spend the money. Meanwhile, the direct impact of large dollops of foreign investment on the foreign exchange market will push the shekel further up - it has been on a strengthening trend for some time - and thereby have a benign influence on inflation and create confusion in the Bank of Israel with regard to interest rate moves. But these issues, as well as the potential positive impact of a) the projected expansion of Iscar under its new owners and b) the new businesses and projects that the Wertheimers may be expected to create with their new-found billions, all pale into insignificance compared to the basic fact that underlies this deal: Warren Buffett chose to make his first overseas investment, and his third-largest ever anywhere, in an Israeli company. Since most Israelis had never heard of Warren Buffett until a week ago, they may be excused for failing to understand why this is such a big deal, in the metaphorical sense (most people understand that $4b. in cash is a big deal in the literal sense). Beyond trying to explain to the unwashed masses the legendary status of Buffett in the global financial markets, and repeating the lines about 'the second-richest man in the world,' 'the savviest investor in the world' and so on, it is very difficult to translate the excitement that gripped the business and financial community when the news broke. Perhaps, instead of trying to explain anything, it would be easier to simply make two statements that represent the conclusions of any analysis of the Berkshire Hathaway - Iscar deal. One is that, from now on, no one can use the argument that Israel is a dangerous or difficult place to invest in. Buffett is the ultimate kosher stamp, and if it's OK for him to invest here, that's the end of the security/safety discussion. The only relevant issue is whether a specific investment is worthwhile, not its Israeli location. The second point is even more far reaching, but seems to have been generally overlooked. Buffett has been saying for years that he can find nothing to buy in the US. Now he has begun to expand overseas, not merely by taking positions in the currency markets, but by direct investment in foreign companies. In this odyssey, his first port of call is Israel. In short, Buffett is bearish on America and bullish on Israel. The Oracle of Omaha hath spoken, who shall not listen? [email protected]


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