From gas attendant to oil tycoon

David Wiessman steers the Alon Group to spectacular new growth.

By AVI KRAWITZ
wiessman 88 (photo credit: )
wiessman 88
(photo credit: )
David Wiessman's career has come full circle. From his student days working as a petrol pump assistant at a Sonol gas station, the soft-spoken chief executive of the Alon Oil Group Ltd. has risen not only to build the largest trade and services company in Israel, but to be a major player in the US energy industry. Having successfully restructured the group to focus solely on the Israeli and US food and fuel markets, Wiessman believes that he is in an ideal position to accelerate the company's growth even further, through acquisitions and by creating synergies between the two sectors. The significance of subsidiary Dor Alon's acquisition of Sonol last month for NIS 140 million therefore goes beyond Wiessman's personal connection to the company. For Wiessman it was a key strategic move that fits perfectly into the new structure of the group. "Over the last seven to 10 years we have had enormous growth and felt that we needed to consolidate this success by creating a structure that would be a platform from which to move forward," Wiessman said in an interview. "We have now completed that process and have a very focused group of companies." Wiessman is also confident that the Sonol purchase will bode well for consumers, who have been hit with a 30 percent rise in gasoline prices since the beginning of the year. Having reduced the number of players in the service station market from four to three the other two being Paz and Delek Wiessman explained that the acquisition will for the first time create an effective competitor to Paz, "which has control of the best sites in the cities and on the roads." "As a newcomer it's very difficult to obtain a license to open a station in the city," he said, "so now for the first time, through a combination of Sonol and Dor Alon, we will be able to compete with Paz." Part of the company's strategy is to make all its stations self-service, where, according to law, gasoline is sold at a discount. This, Wiessman added, would help somewhat in addressing the hike in fuel prices. Perhaps more significantly, however, the Sonol deal gives Alon the opportunity to import oil and thus compete with the government-owned refineries in Haifa and Ashdod as a distributor of oil in Israel. "Until now, no company in Israel was big enough to bring in big tankers on a regular monthly basis and use all of the oil," he said. "With Sonol, we have enough gas stations to deliver to, the know-how to do it, and the facilities necessary to make it worthwhile. This way we can get a better price for our product and filter that through to the customer." Wiessman added that Alon will bid for the government's stake in Bazan, the Ashdod refinery, if the conditions are right. "If it becomes an 'ego price' among Israelis, then we can find refineries at a better price in Europe or the States and compete here by importing," he said. This may be a hint that he is looking to duplicate in Israel his operations in the US. ALON USA owns an oil refinery in Big Spring, Texas, which processes over 70,000 barrels of crude oil per day. It also owns and leases pipelines that serve as outlets for the refinery and allow it to distribute petrol to over 500 service stations across the Southwestern US. Having been spared the devastation of Hurricane Rita, which hit parts of Texas, and that of Katrina before it, Wiessman downplays the storm's long-term effects on oil prices, pinning the hike on high demand in China and the US, which has pulled the market out of balance. "There is no shortage of crude oil, but rather an imbalance which will take a year or two to level off," he said. "There is, however, not enough refinery capacity in the US to supply all the demand, so the US also needs to import finished products, as does China, which all adds to the price." Crude oil for November delivery fell to a two-month low Thursday, tumbling as much as 1.4%, to $61.90 a barrel in morning trade on the New York Mercantile Exchange. The price had risen some 17% since June, reaching a record $70.85 on August 30, the day after Katrina hit. Oil has more than doubled in the past two years. Analysts said Thursday's fall came due to US fuel imports rising to a record level last week and the subsequent concerns that high prices were eroding demand. Meanwhile, US Energy Department data shows that US demand for fuel fell 8.9% in the four weeks prior to September 23. At the same time, Wiessman acknowledged that margins went up after Katrina, which means that oil companies made more money. "We may profit, but we don't like the situation nobody wants to make money from such devastation," he said. In the aftermath of Katrina, Alon USA contributed $100,000 to the victims of the hurricane. On Thursday investment house Lehman Brothers revised its earnings forecast for Alon USA for the remainder of 2005 and 2006, due to the "slower than expected recovery in offshore oil and gas production and the TX/LA Gulf Coastal refining operations in the aftermath of Katrina and Rita." The firm increased its 2005 earnings per share forecast to $2.05 from $1.95, and its 2006 estimate to $2.15 from a previous forecast of $2.10. Alon USA shares were unchanged at $22.91 during early afternoon trade Thursday. Lehman Brothers has a target price of $25 on the stock, which has a market capitalization of $1.2 billion. Dor Alon Energy in Israel dropped 1.2% to NIS 49.38 in Tel Aviv. The two energy units were listed as a significant part of the restructuring process. "Between the two IPOs and Blue Square, which is already a public company, we have resources of hundreds of millions of dollars to grow the business," Wiessman said. "Our strategy now is that each subsidiary will grow through acquisitions, such as the Sonol purchase." He added that there are no plans to make the holding company public. The Alon Group is owned by Bielsol Investments, of which Wiessman is the chairman (40%), the Kibbutz Movement (34%), and Africa Israel Trade (26%). WITH THE Israel and US energy companies forming a solid base for the business, the new structure aims to build on the opportunities presented by the high fuel prices by creating synergies with the food sector. To this end Alon's American operation includes 170 7-Eleven stores on site at its Fina service stations. It operates approximately 1,400 gas stations under the Fina brand name. Long considered the pioneer of bringing on-site stores to its gas stations in Israel, Alon is the local franchisee of KFC and Pizza Hut and holds a 50% share in coffee outlet Segafredo. These food holdings, along with its control of the supermarket chain Blue Square, make up the company's third subsidiary, "Israeli food." Alon's fourth subsidiary is a partnership in the Trans Israel Highway toll road, Route 6, along which it has plans to open new stations with attached "one-stop shops." These synergies are a realization of a long-term vision Wiessman has had for the company for some time now. "From the beginning I realized that you can do a lot [more] with the same land you are acquiring for a gasoline station," he said. "This was in the '80s when I saw that to buy one or two acres of land and just put a gasoline station would not give you the optimum value of the land, so I started to build thousands of square meters in each station of offices, banks, restaurants, etc." With this dream firmly in place and his boundless energy for energy, Wiessman maintains his company's focus, careful not to deviate from his goal in looking for new opportunities for expansion. With this, the ex-pump attendant father of three, who "of course spend their summers pumping gas," is set to further increase his standing as the Israeli Oil Tycoon.