(photo credit: Associated Press)
Minister for the Development of the Negev and Galilee Shimon Peres said Sunday that the Wertheimer family, who sold the Iscar Metalworking Cos. to American businessman Warren Buffet for a record $4 billion, intended to invest a "significant portion" of the profits from Iscar's sale in Galilee development projects.
Peres said that the government should assist the Wertheimers in this objective.
However, Dr. Yaakov Sheinin, of the Economic Models group, said that the deal was not an investment in Israel's economy, as some have lauded, but rather a sale of an Israeli business to foreign investors.
Sheinin said that while the Wertheimers might decide to reinvest their profits in Galilee development projects, they could just as easily decide to invest abroad.
Although Iscar has not floated on the Tel Aviv Stock Exchange, it rose to record levels Sunday, the first trading day after the transaction was announced the day before.
The Tel Aviv 100 Index, rose by 2.00 percentage points in early trading, breaking through the 900 point barrier for the first time. The Tel Aviv 25 Index rose 1.69 percentage points, while the Tel-Tech Index was up 1.2%.
Steff Wertheimer, founder and honorary chairman of Iscar, an industry leader in metal-cutting tools, said Sunday morning that the negotiations took six months, and that he had met wonderful people. According to Wertheimer, the deal was made to assure that Israel would retain its industry, especially in the Galilee and the Negev.
Wertheimer told Army Radio that for 25 years, he had taken Galilee development to heart. "I was glad things went well and we were part of the world," he said, adding that the main objective of the business deal was to expand industry in the Galilee.
Buffet, meanwhile, said in an interview to Ma'ariv that he intended to visit Israel in September, and that he was planning to acquire more Israeli companies.
"This is a moment for Israel's economic standing and ability when a global investor guru such as Warren Buffett decides to make this crucial investment in Israel following the rise of the Hamas government," Shlomo Maoz, chief economist at Excellence Nessuah, told The Jerusalem Post. "It represents a high vote of confidence which will boost Israel's status in the world and attract other foreign investors to follow Buffett's lead."
Prime Minister Ehud Olmert spoke on Saturday night with Eitan Wertheimer, chairman of the board of Iscar, telling him: "This is major news and a great present for the State of Israel. We salute you, both personally and on behalf of the entire State of Israel. This sale will provide great momentum to the Israeli economy and I am certain that it will lead to other economic benefits."
According to the Prime Minister's Office, Wertheimer thanked Olmert, with whom he was planning how the acquisition of Iscar can be an economic lever for the State of Israel. He added that he views the transaction as "lighting an economic torch." just as his father, Steff, lit one of the torches on Independence Day.
He added that Buffett's declaration of confidence "was an important statement for the country and will be spoken of in the same light as the Balfour Declaration." Olmert was scheduled to speak with Buffett Sunday afternoon.
Iscar is the first business Buffett's investment firm, Berkshire Hathaway - which has a market capitalization of $135b. - has purchased outside the US. For Israel, the deal makes the Wertheimer family the wealthiest family in Israel.
"What makes Iscar particularly attractive are the motor airplane tools, which the company produces, for which there has been high demand in the world," said Maoz. "The deal will boost other players in the industry but to a limited extent, not as acquisitions in the high-tech industry."
Although the deal includes Iscar's subsidiaries, it excludes Iscar Blades, the maker of airline industry cutting devices, which will remain in the hands of the Wertheimer family. Under the terms of the deal, which values Iscar at $5b., the Wertheimer family will retain 20% ownership of the company.
The deal, signed on Friday, came on the eve of the weekend's annual shareholder meeting at Berkshire, and follows speculation that Buffett would use the vast amounts of cash accumulated by his company to make a large purchase. Berkshire's cash pile has reached about $45b.
"You will probably look back on this in five or 10 years as a very significant event in Berkshire's history," Buffett said at Berkshire's annual meeting in Omaha, Nebraska.
Buffett, considered the second wealthiest man in the world after Microsoft's Bill Gates, said he intended to visit Israel later this year, not only to visit Iscar headquarters, but also to see if there were "any other pearls out there."
Iscar's current management team will remain in place, as is customary when Berkshire buys companies. Buffett promised that none of the 2,000 Israelis working for Iscar in Israel would lose their jobs. Iscar has facilities worldwide, with the largest located in Tefen in the Galilee.
"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," said Jacob Harpaz, president and chief executive of Iscar.
News agencies contributed to this report.