Taking Stock / Ofer and the State

He doesn't pose for pictures or give interviews. He doesn't hold press briefings or rub shoulders. He has traditionally conducted most of his business from London and Singapore, but returned to Israel in 1999 when his father and uncle bought one of Israel's biggest holding companies from Shaul Eisenberg.

When the financial statements are lousy, he sends his top hired help, Yossi Rosen, to proffer excuses. When they're great, he sends Rosen to take the credit. When problems arise, it's Rosen out there solving them; and when success ensues, Rosen's there too.

Everybody who reads the papers knows about the stunning move Nochi Dankner made in taking over the IDB group. They know about Yitzhak Tshuva's amazing career with Delek and they are awed by the revolution Lev Leviev has carried out at Africa Israel.

The story of Idan Ofer, son of Sammy, at The Israel Corporation isn't a rags-to-riches tearjerker. The Ofer brothers were billionaires before buying The Israel Corporation; and what did the deal bring them? Another half-billion or so to their already enormous wealth?

But just look at the figures.

1. In January 1999, brothers Sammy and Yuli Ofer swooped out of the blue and bought the controlling interest in The Israel Corporation from Erwin Eisenberg for $300 million cash - a transaction pricing the company at $620 million. That was quite a bit above its market cap at the time.

As of Wednesday, The Israel Corporation was trading at a market value of $1.35 billion. The Ofers' stake in the company is worth $750 million, after they sold NIS 100 million worth of shares.

2. For the first nine months of 2004, The Israel Corporation reported netting a billion shekels, which translates into a 40-percent return on equity - a record high for the company.

Idan Ofer, its chairman, is the man at the helm, after Sammy and Yuli separated their assets a year ago.

3. Israel Chemicals, in which The Israel Corporation holds a 51-percent interest, netted $169 million in the first nine months of 2004. ICL stock is trading at an all-time high.

The Israel Corporation bought the controlling stake in ICL eight years ago, paying the state according to a company value of $800 million. Since then, ICL has paid half a billion dollars in dividends, and today its market cap is $2.7 billion. That $800 million turned into $3.2 billion.

4. The economic boom in India and China is probably the best thing that has ever happened to the Ofer clan. It sent the entire international shipping and haulage industry into its most prosperous time ever. Shipping prices doubled and tripled, while crude reached record heights of up to $55 a barrel.

The result was that Zim netted $110 million. At the start of the year, the Ofers carried out that famous deal with the state, buying out its 50-percent stake in Zim at a bargain basement price. Now with 98 percent of Zim's shares, the Ofers get its profit.

Oil refining is considered a highly volatile, low-margin, high-risk business. But the climb in crude lifted Oil Refineries' margin from $23 to $46 a ton. Oil Refineries ended the third quarter with an unprecedented profit of NIS 555 million.

5. The biggest problem in The Israel Corporation portfolio is Tower Semiconductors. Its condition is deteriorating; it isn't meeting the goals in its business plan; and it isn't meeting the terms of its loans either. It is highly doubtful whether The Israel Corporation will return its billion-dollar investment over three years.

Happily for the Ofers, they managed to roll over most of the risk in the project onto others - the state, the banks, strategic partners and investors who bought pieces of the company at the year's start for $7 per share. That is more than triple the share price today.

6. Unlike so many of Israel's big corporations and millionaires, the Ofers never got involved in communications, so it was immune from the great crash.

But when Internet and communications collapsed, The Israel Corporation got into a little company called PSINet. During the bubble days, PSINet had raised hundreds of millions of dollars; come 2002, it was sold for $10 million.

On Tuesday, the Ofers sold their interest in PSINet for $90 million, taking home a post-tax profit of NIS 200 million. Not many venture capital funds can boast returns like that.

7. Surprised by the numbers? Remember, most of the Ofers' businesses are privately held. The family has shipping interests that go far beyond Zim, and they hold properties all around the globe that are worth several hundred million dollars.

Representatives of the Ofer clan tend to complain that it's hard to do business in Israel. It's a crazy country, they grouse, where the state hassles them and the regulation is predatory.

But the bottom line speaks loudest of all. Idan Ofer has done amazing business in Israel, from companies bought from the state the Ofers malign, and from companies in which the state is its partner.