Taking Stock / The Ofers: Image and Fact

You buy companies from the state dirt cheap. You get your franchise expanded to other businesses as well. You conduct an eternal war of attrition against the government and when finally sitting down to negotiate with them, you bring along an attorney who can turn them upside down and inside out, scrambling their brains into shakshuka.

That's pretty much the image that Sammy and Idan Ofer's company, The Israel Corporation, has gained itself. From every shekel in profit the company reports rises the aroma of shakshuka (more usually known as a spicy scrambled egg and tomato dish), most lately whipped up by their legal counsel Ram Caspi as he handled the purchase of Zim for the Ofers.

In the five quarters since The Israel Corporation bought Zim from the state, the shipping company earned an aggregate $240 million. Some of that derives from nonrecurring gains, i.e. from selling ships, but given the laughable price the Ofers paid - a mere $130 million for half the company's shares - it's clear who was feeding shakshuka, especially spicy shakshuka, to whom.

Say `thanks' in Mandarin and Hindi

But the main driver behind the half-billion shekel profit The Israel Corp. presented last week wasn't its business with the state, however spicy. It was two of the biggest economies in the world, albeit ones very distant from Israel - India and China.

The Israel Corporation's main asset is 50 percent of Israel Chemicals (ICL). You guessed it, The Israel Corp. bought the company from the state 10 years ago, but the Ofers weren't the owners then, Shoul Eisenberg was.

He had bought ICL from the state via a tender in which Koor Industries and the billionaire Ted Arison also contended. But they withdrew from the auction as the price climbed. Finally, Eisenberg bought ICL according to a company valuation of $925 million, which at the time was considered terribly expensive. For a long time, ICL traded well below that value.

Under Akiva Mozes' management, over the years ICL became one of the most prosperous fertilizers and chemical suppliers in the world.

As for China and India, their economic growth sparked tremendous demand for commodities in recent years, and ICL is rising an unprecedented boom in the markets for potash, bromine products and acids. Not only is demand surging quantitatively, so are prices. Potash prices have doubled in two years.

For Q1 2005, ICL reported netting $95 million, triple its earnings in the parallel quarter of the year before. Analysts say its adoption of natural gas as an energy source should raise its profits another step in the upcoming years.

The Chinese and Indians are also responsible for the 15.6-percent climb in the shipping price per container Zim could charge in the first quarter. Zim isn't one of the world's biggest haulage companies, but its lines to the East are booming. In the first quarter, it netted $65 million, four times its take in the parallel.

Great expectations

Moving onto another Israel Corp. asset, for years the company claimed the monopoly couldn't possibly finance the tremendous investments it really needed, and introducing competition into its sector was unthinkable.

That may have been true when oil was selling for $15 to $30 a barrel. But with oil going for $50 a barrel, Oil Refineries' margins shot up to about $48 per ton, double the level in the parallel quarter. The colorless company turned into a cash cow overnight that presented NIS 280 million earnings for Q1 2005.

Then there is Tower Semiconductors, the black sheep. Five years ago Idan Ofer fell under the charm of the vision presented by Yoav Nissan, the company's chief executive at the time, to build a giant chipmaker that could compete with the Taiwanese. The diversion has cost The Israel Corporation several hundreds of millions of shekels, but happily for the company, most of the risk entailed in the monumental project was undertaken by the state and the banks. Tower is a serious blemish in The Israel Corporation's books, but the company's total monthly exposure isn't more than its profits.

Idan Ofer didn't buy The Israel Corporation in the media spotlight, dramatically leaping at the giant investment at the height of the recession, as his friend Nochi Dankner did when buying IDB two years ago. Nor did Ofer buy The Israel Corporation in some hostile takeover aided and abetted by Bank Hapoalim, which is how Yitzhak Tshuva bought Delek Group.

No: Ofer simply inherited the scepter from his daddy, the billionaire Sammy Ofer, who had bought it from Eisenberg in January 1999.

But the dramatic progress in the company's results and share price have made the acquisition of The Israel Corporation one of the best deals made in Israel for a decade.

In the last 12 months, The Israel Corporation stock rose 80 percent, lifting the company's market valuation to $2.1 billion. Factor in the dividends the company has paid shareholders in recent years, and you find it's trading at roughly four times the value at which Eisenberg's heirs sold it.

Maybe it's just that Sammy Ofer, his brother and his sons have a supremely good sense of timing for buying businesses, at the right price, even when the sellers are fellow canny billionaires, not just government officials.