The terrorist attacks in the United States and the statements made by the White House about an impending war have diverted the attention of capital market investors around the world in a new direction.
Up until a short while ago, it appeared as though the world was heading toward smoother sailing and an atmosphere of security. In keeping with this sense, the leading industries on western stock exchanges were in the fields of communications, leisure and entertainment. The world's focus has now turned to the U.S. response to the terrorist attacks that is likely to transfer massive resources to military budgets.
Up until the recent violent events, various arms manufacturers had been trying to polish their security images and promote their products on civilian markets.
Many such "security" companies had been trading with low profit-earnings ratios of 5 or 6, mainly due to the capital markets' assessments of the future of their enterprises and the anticipated need for their products over the next few years.
Following the terrorist attack on September 11, however, weapons, ammunition and security equipment manufacturers have come to center stage. Tadiran Wireless Communications Industries, which has been making wireless communications equipment for years and is the world leader in tactical communications, is one such enterprise.
In 1999, Koor Industries sold Tadiran Wireless to a group headed by the latter's management, in conjunction with the Shamrock Group (49 percent) and First Israel Mezzanine Investors (30 percent). Last year, Tadiran was floated on the Tel Aviv Stock Exchange based on a market value of $90 million and was one of the last Israeli companies to go public before the current intifada. Since then, Tadiran's share has seen better days and the company is currently trading based on a value of $55 million.
The president of Tadiran, Hezi Hermoni, said that since the attacks on the U.S. many customers had reacted "to the point of hysteria," increasing existing orders and asking to bring forward delivery dates. Many factories, including Tadiran's plant in the U.S., he said, had received advanced warning of the possibility of the commandeering of entire production lines in order to supply orders coming from the U.S. government.
Hermoni has also received phone calls concerning manufacturing capabilities and thresholds for increased production volume, so that any problem could be dealt with locally. If there were to be a shortage of raw materials, for example, he would have to provide a list of a plant's suppliers and the government would deal with speeding up the supply of such materials. Hermoni noted that Tadiran was investigating the purchase of a $1.3-million production line so as to keep up with the anticipated increase in demand.
When the terrorists struck on September 11, Hermoni himself was at New York's La Guardia Airport, on board a plane that was waiting to take off for Israel. The plane was grounded and Hermoni had to stay a few extra days in New York.
He witnessed the hysteria caused by the simultaneous collapse of all the city's communications systems. "Americans don't know that when there is an attack, cellphones don't work," he said, adding that companies and organizations would now have to have backup communication systems.
In retrospect, it seems that Tadiran made a good deal when it purchased Mobat Communication from Motorola and Bartel for $5 million at the beginning of 2001.
Mobat, which develops high frequency radio systems for long-distance communications, sells to governmental and federal organizations, United Nations forces, police departments and other large institutions that need readily-available reliable communications systems in emergency situations.
Civilian organizations such as municipalities, airports and fire departments, some of which could not perform simple communications operations due to the collapse of the landline phone system during the attacks, will now purchase such backup systems.
Nehemia Shiff, Tadiran's vice-president of finance and control, said that a completely new security avenue had opened up. He noted that it was still uncertain where funds would be invested, but said that budgets of billions of dollars would be channeled to this field. Shiff said that more resources than had been expected would be channeled to the military, due both to the terrorist attacks and the rise of the Republican Party to power in the United States.
Sources at Tadiran said that sales in Israel were unlikely to increase, as the army here had been preparing for a war for years and the Defense Ministry prefered to do business with Israeli companies. Orders from abroad, however, were expected to increase substantially, the sources added, noting that just recently, Tadiran had received an order worth $70 million from the navy of a South American country.
Since the type of communications systems sold by Tadiran are expensive to begin with, and even more costly to replace, the company's strategy is to add one new country to its list of customers each year.
In Brazil, for example, Tadiran initially sold a small independent system to an elite unit for $2 million. Since the integration of the system, orders from Brazil have been pouring in. Tadiran now sells to 34 countries and is the main communications equipment supplier to the armies of 15 of these countries.
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