Buffett Personally Cuts Ribbon at Iscar China

Oracle of Omaha brims with pride about his first deal outside the United States: 'Iscar could become a lot bigger than people imagine,' he tells TheMarker in an exclusive interview.

DALIAN, China - "Iscar is a dream deal. It has surpassed all the expectations I had when buying the company, and my expectations had been very high." Thus Warren Buffett yesterday, a year and a half after buying the 80 percent controlling interest in the northern Israeli blades technology maker from the Wertheimer family for a cool $4 billion. The acquisition, closed in May 2006, had been Buffett's first outside the United States.

Yesterday the man also known to the global investment community as the "Oracle of Omaha" for his brilliance in investing granted an exclusive interview to TheMarker on the occasion of his visit to Dalian, China's northernmost ice-free seaport, to inaugurate a vast Iscar Metalworking production plant in the city. Iscar also owns production facilities in South Korea.

All the people at his company, Berkshire Hathaway, feel the same positive way he does about Iscar, Buffett says. "Since I met Eitan Wertheimer and acquired Iscar, the people at Berkshire Hathaway think I'm a lot smarter," he quips.

This is not a man who leaves the United States a great deal. He's only visited China once before, 12 years ago, on vacation with his wife and with Bill and Melinda Gates. Despite China's increasing dominance in the global business scene and financial markets, neither couple visited the vast country again, until now. And the only reason he came this time is to open the Iscar plant in Dalian, he avers. "The moment Eitan suggested that I come here, I said I'd come."

How has Iscar done since he acquired the firm? "Next week I have a board meeting in Columbus, Ohio," Buffett answers. "Only three Berkshire Hathaway companies will be making presentations there: two insurance companies and Iscar." And when the people from Iscar make their presentation, says the Oracle, the buttons are going to burst right off his shirt because he'll be so puffed with pride about that deal.

Neither Iscar's people nor its owner will divulge a thing about the company's financials. But TheMarker can do math and estimates that the year 2007 was one of the best in the company's history, partly because of roaring demand for its blades technology in the giant emerging markets of Russia, India and China itself. The company's sales apparently passed $1.5 billion and it is estimated to be clearing between $450 million to $500 million this year.

One indication of how extraordinarily profitable Iscar is, is the decision by the Berkshire Hathaway accountants to classify Iscar, in the parent company's consolidated financial statements, as a company with substantial impact on the group. Now, Berkshire Hathaway's market capitalization on Wall Street is about $200 billion and it nets $12 billion a year. That means Iscar is producing big figures.

Asked if he got a good price on Iscar given its financial results, Buffett does not hold back: he made an excellent deal, but so did the Wertheimers, he qualifies. "They didn't want to sell the company like a piece of meat on the market. They wanted people who would let them work, who view life much the same way. I got exactly what I wanted and I think they did, too."

It's like a marriage, Buffett enthuses: after three months, you find out if it's better or worse than you thought it would be. His union with Israel's Iscar is better than he'd anticipated, he says.

What are his expectations for the long run? "This company could become a lot bigger than people imagine," he says simply.

Buffett famously avoids giving forecasts about stocks. He prefers to confine his attention to picking companies. But in answer to TheMarker's question about the subprime mortgages crisis in the U.S., which set off a crisis squeeze around the world, he says with certitude: it isn't over yet. "There will be more pain," says Buffett. He can't predict if the problems will infect other areas, but it would be stupid to assume that they won't spread: "A lot of people won't be able to pay the mortgages they took out."

Regarding Chinese stocks, which have more than doubled in price in the last year, Buffett rather set a cat among the pigeons, counseling the investment community to tread cautiously regarding Chinese stocks. Chinese share prices look pricey, he hinted, noting that his policy is never to buy stocks when he sees prices soaring.

Buffett added that just this month Berkshire Hathaway sold its holding in PetroChina, listed in Hong Kong, which mushroomed in market capitalization to become the second-biggest company in the whole world.

Warren Buffett, widely believed to be one of the best investors in the world, counsels you: look very carefully at what you're getting for your money.