Cause for concern
Op-ed: Buffett's takeover of Iscar does not necessarily serve Israel's national interest
When the legendary Warren Buffett invested more than $4 billion seven years ago in the acquisition of an 80% stake in Iscar,
a Galilee industrial company privately owned by the Wertheimer family, Israel
was filled with a wave of joy. We see no similar joy or any kind of elation in light of Wednesday's announcement
that Buffett plans to buy the remaining 20% of Iscar. On the contrary, there is a sense of sadness and an uncomfortable feeling over an event whose motives are unclear, and whose results could negatively affect the economy.
The joy in 2006 had a reason: The wealthiest man in the world (at the time) came to invest billions in an Israeli export industry – is there any better proof of our excellent, leading and attractive economy? Not to mention the fact that the acquisition announcement was accompanied by calming and flattering words from Buffett himself towards Israel and its abilities. The words of a lover who would not imagine betrayal.
Following Sale
Israeli currency rises 0.2% to new peak versus American currency, partly boosted by deal by Warren Buffett's Berkshire Hathaway to buy rest of Iscar for $2.05 billion in cash
In the years that have passed since then, everyone gained. Iscar grew, developed and expanded, and infused some $4.5 billion in profits to Warren Buffett's centralized and pyramid-shaped holding company. Its value doubled. The Wertheimer company took the billions it received from selling the controlling interest in Iscar, legally paid taxes for them, and quietly and peacefully enjoyed the great wealth. It didn't use its liquid capital for further major investments in the Israeli industry, nor did it gain a reputation of an extraordinary donor to social, educational or cultural causes.
Buffett's holding company made very major investments in the meantime in what are` known as "old industries": Trains, the press, food. For some of these investments Buffett was praised; others raised eyebrows and drew criticism. On Wednesday, after he announced the acquisition of a further 20% stake in Iscar, one could not avoid asking why on earth is he willing to spend another $2 billion, when there is practically no difference between controlling through 80% of the shares or through 100%?
The answers that come to mind include two that are very troubling as far as Israel is concerned: The first one is that Buffett may be planning to reduce Iscar's industrial activity in Israel to a minimum and set up alternative production lines in America or Asia – and is buying the rest of its stock for that reason. The second one is that Buffett's holding company may be turning Iscar into an American company for all intents and purposes, without leaving a trace of Israeli ownership or affiliation, for cold and calculated taxation considerations. The State's Treasury will indeed receive a one-time fat check of more than NIS 1.5 billion (about $420 million), but will lose almost all income from taxes on Iscar's future profits.
Even if these two options are far today from Warren Buffett himself, there is no certainty that his heirs will not choose one of them or both.
In any event, Warren Buffett's move fits into a deep transformation taking place in Israel's business sector: Israeli tycoons and entrepreneurs are leaving, while foreign investors are entering. Foreign capital is completing its takeover of large portions of the Israeli industry. Such a takeover may nicely serve the interests of the sellers, but I'm not sure it serves our national interest too.
There is room for sad pondering here, if not for real concern.
