Warren Buffett Buys Out Israeli Tool Firm Iscar for $2 Billion

Berkshire Hathaway to buy 20% stake from Wertheimers, completing ownership of the company.

Billionaire U.S. investor Warren Buffett intends to buy the final 20% of Iscar from the Wertheimer family for about $2 billion, the sides announced on Wednesday. This will give Buffett's company Berkshire Hathaway complete ownership of the Israeli cutting-tool firm.

Berkshire Hathaway bought 80% of Iscar seven years ago in its first acquisition outside the United States. At the time it received an option to buy the remaining 20%.

Iscar is headquartered in the northern Israeli community of Tefen and is now formally known as International Metalworking, or IMC. The deal gives Iscar a total valuation of about $10 billion, about double its valuation when Berkshire Hathaway bought its initial 80% stake in 2006 for $4 billion.

Soon after that purchase, Iscar quickly proved itself with its positive contribution to Berkshire's financial results.

Berkshire had high expectations for Iscar, and the company passed them, Buffett told TheMarker. Israel isn't a place to look for oil, but there isn't a better place to find talent, he stated, adding that Iscar's team is one of the best in the world when it comes to brains, energy and commitment.

Iscar was founded in 1952 by Stef Wertheimer in the Western Galilee town of Nahariya and moved in 1982 to the Tefen Industrial Zone, about 20 kilometers away. In 1984 Stef handed over the reins to his son Eitan. In 1995 Eitan Wertheimer passed the CEO's seat to Jacob Harpaz and went on to serve as chairman and later president.

The company's financial reports are kept secret - Iscar is privately held, so it has no obligation to publish them - but according to estimates sales passed $3 billion in 2011, more than twice what they were in 2005. Its net profit for 2011 is thought to be close to $1 billion, compared to $440 million on the eve of its sale to Buffett.

Wednesday's announcement must have also brought smiles to the faces of Israel Tax Authority officials. The state could receive nearly NIS 2 billion in taxes from the Wertheimer family once the deal closes. Officials declined to say how much the Wertheimers would be paying, in keeping with the Tax Authority's policy of not disclosing details about the tax bills of corporations or individuals.

But it is safe to assume that the tax revenue from such a buyout would be substantial - welcome news for the state's depleted coffers.

When the Wertheimers sold 80% of Iscar seven years ago for $4 billion, media reports speculated that the family paid $1 billion in tax, or NIS 4.5 billion given the shekel-dollar exchange rate at the time. The tax authority never confirmed these estimates but today the same tax rate would yield about NIS 1.8 billion for the current transaction.

"Since the time IMC entered our lives, my partner Charlie Munger and I have enjoyed Berkshire's association with the company, the Wertheimer family and the company's management team," said Buffett, Berkshire Hathaway's chairman and CEO in a statement released Wednesday from his Omaha, Nebraska headquarters.

"As you can surmise from the price we're paying for the remaining interest, IMC has enjoyed very significant growth over the last seven years, and we are delighted to acquire the portion of the company that was retained by the Wertheimer family when IMC first became a member of the Berkshire group of companies.

"We look forward to continuing our stewardship of this unique company founded by the Wertheimer family in Israel 60 years ago and nurtured into a truly global enterprise," Buffett said in the statement.

Eitan Wertheimer said, "We are very pleased that IMC has found a permanent home in Berkshire Hathaway, which fully appreciates the unique nature of the global Israeli enterprise that we have created and that is committed to remaining true to that heritage in every way, building on and continuing our historic success and special culture.

"The growth experienced by IMC since the 2006 Berkshire transaction validates the faith that Warren [Buffett] and Charlie [Munger] showed in our business and the special people in Tefen, Israel and around the world who have made our success possible," said Wertheimer.

"We are confident that the vision begun by Miriam and Stef Wertheimer, and carried forward by the family's second generation, in partnership with IMC's supremely talented and dedicated executive team, will continue to drive the group forward as a part of the Berkshire family, under the leadership of president and CEO Jacob Harpaz," Wertheimer said.

Ancho Gosh