Tilson on Berkshire AGM

Transcipt of email I just received from Witney Tilson. Hope I'm not violating any copyrights, there weren't any warnings or anything in the email.

I attended the Berkshire Hathaway annual meeting this past weekend, which was fun and enlightening as always. I just finished typing up my notes – 29 single-spaced pages (phew!) covering every question Buffett and Munger were asked over five hours – which will be sent to Value Investor Insight subscribers tomorrow (Tuesday) morning. If you’d like to read them right away, just subscribe to VII at www.valueinvestorinsight.com/subscribe (eventually they’ll be posted on my public web site as well).

In addition to the mind-bogglingly-amazing earnings report, the big news from the Berkshire weekend was the Iscar acquisition, which is fantastic for three reasons:

1) It’s big (at $4 billion, it’s the 3rd largest deal Buffett has ever done);

2) It appears to be an awesome business. According to an article in an Israeli newspaper, it was valued at $800 million in 1997 so it’s increased in value by more than 6x in nine years (that’s 22.6% compounded); and

3) It’s the first business Buffett’s ever bought that is headquartered overseas. This is a huge step forward in expanding his hunting ground for the “elephants” he’s seeking from just the U.S. to the entire world. Having lived and traveled all over the world, I know that there are many fabulous, privately held businesses like Iscar and Berkshire is the perfect buyer for many of them.

No wonder Buffett said: "I think you’ll look back at this in 5-10 years as a very significant event in Berkshire’s history...I’m going to Israel in September to see if there are any more girls like Iscar there."

It was also very interesting to see how Buffett introduced Iscar to the Berkshire shareholders. First, he and Munger raved about the business, its management and the founding family (which still owns 20% of Iscar). Then Buffett asked the CEO, Eitan Wertheimer, to stand up and be recognized (everyone applauded). Wertheimer took a microphone and spoke for about five minutes about his company and how delighted he was that it would be joining the Berkshire family. Finally, they showed a 10-15 minute movie about Iscar and it many worldwide subsidiaries, products and markets (the company makes all kinds of highly specialized cutting tools that are used in a wide range of industries including automobiles and aerospace).

This was, in effect, a very public wedding: both sides making vows of lifelong love, loyalty and commitment, in front of a vast number of friends, family and witnesses.

In addition, the press in Israel has been remarkable. Here’s an excerpt from one article:

Prime Minister Ehud Olmert called Eitan Wertheimer last night to congratulate him on the sale. “It’s terrific tidings and a great gift to the State of Israel”, Olmert said. “We tip our hat to you, personally and in the name of the whole country.” The Prime Minister’s Office commented that Wertheimer “thanked the prime minister.”

Eitan Wertheimer said selling the company for him is “lighting an economic torch,” just as his father Stef lit a torch on Independence Day. According to him, Buffett’s expression of faith is an important declaration for the country, “and just as they talked about the Balfour Declaration - now they’ll talk about the Buffett Declaration.” Olmert will speak with Buffett today. A government source said Olmert was indirectly involved in the deal.

A friend observed this and (correctly) commented:

The huge edge Buffett has built is represented in the phenomenal global celebration of the Iscar acquisition.

Eitan Wertheimer is now a hero and favored son of the state of Israel and, in selling his company to Buffett, he has achieved a phenomenal stature relative to his peers. Selling to Bain Capital would have not gotten anywhere this level of press, nor generated a call from the Prime Minister.

Is this level of instant global recognition worth offering Mr. Buffett a price he can’t refuse? You betcha! Watch the global competition to be the next Omaha Idol heat right up!! What an edge!

Below are a number of articles about Berkshire and last weekend.

1) Here's my article from this weekend's Financial Times, in which I recommend our largest position, Berkshire.

2) Tom Russo and I are quoted in this article. I didn't realize that the international shareholders got to meet Gates too, and that it was a series of small group meetings. Makes me want to move abroad just for this! ;-)

3) Jason Zweig with some thoughts that mirror my own on the importance of Iscar.

So how will Buffett get rid of all that extra cash? To me, the most interesting thing about his remarks at this year's meeting was the word he never uttered: dividend. In years past, Buffett has admitted that if he could not find a better use for the mountain of cash that his shareholders have entrusted him with, then he would have to consider paying out a special dividend, much as Microsoft (Research) did in 2004. This year he never spoke the D-word, which suggests to me that the Iscar deal may be a template for a new solution to his cash problem. Iscar has several advantages:

• Based in Israel and operating mainly outside the US, it generates most of its cash in foreign currency.

• It was a private transaction, so Buffett did not have to outbid competitors in a public auction.

• It was a sizable deal, enabling him to put a good chunk of cash to work at once.

• And, most importantly, it will send a signal to major family-owned businesses around the world that Buffett is now a buyer of choice beyond the borders of the US. By turning the Wertheimer family, the main owners of Iscar, into instant billionaires, Buffett has sent out a wake-up call to similar potential partners everywhere.

4) Zweig's article on some of the most interesting stuff he heard at the meeting.

5) A couple of other articles with some of the highlights from the annual meeting.

6) Finally, here are four articles on the Iscar acquisition from the Israeli press -- a lot of interesting stuff here like this:

In 1997, Wertheimer acquired Discount Investment Corporation (TASE: DISI)’s stake in Iscar at a company value of $800 million. Wertheimer claims that the substantial increase in value since then (to $5 billion today) was due primarily to the company’s growth during the last nine years.

”They were good partners for many years,” says Wertheimer about the painful and historic parting of company with IDB. “At a certain stage, the management changed and the new people did not understand anything about entrepreneurship, so we had to go our separate ways. IDB has companies in its group that have entrepreneurial flair and could be even more successful if IDB was more open to entrepreneurship companies such as Scitex (Nasdaq: SCIX; TASE: SCIX).”

And this:

Stef Wertheimer and his son Eitan have invested in dozens of Israeli high-tech and medical devices companies, including Micro Tools Ltd.. Founded in 1981 and based at Tefen, Micro Tools has tens of millions of dollars in exports. Its customers include leading computer, electronics, and optics manufacturers, such as IBM (NYSE:IBM) and Motorola (NYSE:MOT).

Stef Wertheimer also owns 50% of Nahariya-based Lachmi bakery, founded by his first wife and mother of his children, who passed away many years ago. Other Wertheimer holdings include Powder Coating Composites Ltd. and Netzer Precision Motor Sensors Ltd..
Eitan Wertheimer’s investment arm, Microdent Ventures has invested has invested in start-ups Comsys Communications and Signal Processing Ltd., ExaNet Ltd., and HyperRoll Inc.. He is also a shareholder in Orsus Solutions Ltd. and has invested in OrthoScan Ltd. and dozens of other companies.

Iscar, known internationally as Industrial Metalworking Companies (IMC) currently has three core companies with over 60 subsidiaries worldwide. IMC has over 5,000 employees, including 1,500 in Israel.

IMC’s main company, Iscar, has dozens of branches and manufacturing plants in other countries. Iscar’s subsidiaries include an Italian company that makes diamond cutting tools, as well as companies in Germany and France.

The second arm, TaeguTec Co. has a huge plant in South Korea, and a joint venture with Hindustan Aeronautics Ltd. (HAL) in India that makes aircraft engine components.

The third arm, Ingersoll Cutting Tools has a factory in Germany for the European market and another in Frankfort, Illinois, for the US market.

And this:

Prime Minister Ehud Olmert called Eitan Wertheimer last night to congratulate him on the sale. "It's terrific tidings and a great gift to the State of Israel", Olmert said. "We tip our hat to you, personally and in the name of the whole country." The Prime Minister's Office commented that Wertheimer "thanked the prime minister."

Eitan Wertheimer said selling the company for him is "lighting an economic torch," just as his father Stef lit a torch on Independence Day. According to him, Buffett's expression of faith is an important declaration for the country, "and just as they talked about the Balfour Declaration - now they'll talk about the Buffett Declaration." Olmert will speak with Buffett today. A government source said Olmert was indirectly involved in the deal.

Enjoy!

Whitney
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Celebrate value investing . . . with a good investment
By Whitney Tilson
Financial Times, May 4, 2006

Omaha's 17,000-seat Qwest Center will be filled to capacity this weekend as Warren Buffett and Charlie Munger preside over the Berkshire Hathaway annual meeting. While it is in part a celebration of the company whose stock has made thousands of people millionaires, it is more broadly a celebration of value investing. While Benjamin Graham remains value investing's patron saint, Buffett and Munger are most certainly its spiritual leaders and most accomplished practitioners, so not surprisingly value investors from around the world flock to Omaha every year.

As a dyed-in-the-wool value investor - as well as co-editor of Value Investor Insight newsletter and co-founder of the Value Investing Congress conference - I wouldn't miss it for the world.

I have encountered thousands of value investors over the years and am constantly struck by their differences - and their similarities. Allow me to explain.

Some value investors invest primarily in small-cap stocks while others stick to large-caps; some invest mostly overseas while others stick to U.S. markets; some run concentrated portfolios, while others are more diversified; some are activists while others never are; some invest only on the long side, others are long-short, and some only short stocks.

But while styles may vary, the fundamental characteristics that unite value investors are many.

• We tend to buy what is out of favour rather than what is popular.

• We focus on intrinsic company value and buy only when we are convinced we have a substantial margin of safety, rather than trying to guess where the herd will go next.

• We understand and profit from reversion to the mean rather than projecting the immediate past indefinitely into the future.

• We understand beating the market requires a portfolio that looks different from the market and we recognise that truly great investment ideas are rare. Thus, we invest heavily in our handful of best ideas and don't hide behind the "safety" of closet indexing.

• We are focused on avoiding permanent losses and on absolute returns, rather than outperforming a benchmark.

• We typically invest with a multi-year time horizon rather than focusing on the month or quarter ahead.

• We pride ourselves on in-depth and proprietary analysis in search of what Michael Steinhardt calls "variant perceptions", rather than acting on tips or relying on Wall Street analysts.

• We spend much of our time reading - business publications, annual reports, and so on - rather than watching the ticker or the television.

• We focus on analysing and understanding micro factors, such as a company's margins and future growth prospects, and not trying to predict the direction of interest rates, oil prices, the overall economy, and so forth.

• We cast a wide net, seeking mispriced securities across industries and types and sizes of companies rather than accepting artificial limitations on market capitalisation or other criteria.

• We make our own decisions and are willing to be held accountable for them and do not just seek safety in whatever everyone else is buying or decision making-by-committee.

• We admit our mistakes and seek to learn from them.

None of this is easy, of course, and, as with any investing discipline, some are better at it than others. But if it were easy everyone would be doing it - which would make investing a lot less interesting … and profitable.

In light of these criteria, what stock might represent great value today? None other than my largest position, Berkshire Hathaway. Nearly all the company's big businesses are firing on all cylinders and its intrinsic value has grown substantially, yet the stock has been flat for two years. Part of the reason is that 2005 was the worst year ever for super-catastrophe events in the insurance industry, thanks primarily to hurricanes Katrina and Rita. As the world's largest reinsurer, Berkshire paid out billions in claims, which temporarily masked the company's prodigious earnings power, but this state of affairs is unlikely to repeat itself.

Using a number of different valuation techniques, I conservatively estimate that the stock is worth $125,000 per A share (or $4,167 per B share) vs. today's price of about $90,000 ($3,000). This 25-30 per cent discount to intrinsic value approaches the largest discount I have seen for this stock. As the company's earnings power becomes apparent, I expect the stock to respond.

An important bonus is that Berkshire is one of the safest (if not the safest) companies in the world. It is one of the few with a AAA rating, and it is sitting on more than $40bn of cash. If you agree that at some point the massive complacency that characterizes markets around the world is going to be shaken, Berkshire's financial strength and liquidity - to take advantage of any market correction - makes it one of the first stocks you want to own.
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Berkshire investors excited by overseas push
By Alistair Barr, MarketWatch
Last Update: 8:29 PM ET May 7, 2006

OMAHA, Neb. (MarketWatch) -- After Berkshire Hathaway Inc.'s annual meeting three years ago, the company had a special gathering for the first time for international shareholders who got to chat briefly with Chairman Warren Buffett and take a quick photo. Roughly 100 people attended.

At Saturday's meeting Buffett made a point of announcing that about 550 overseas investors requested tickets this year, up from 380 in 2005.

"This year it was absolutely enormous," Peter Webb, a U.K.-based Berkshire shareholder who's attended all three international meetings, said. "Waiting in line, everyone was talking about their own country and at least three people said they planned to ask Mr. Buffett if they could write to him about acquisition opportunities."

Investors were asked to enter a meeting room in small groups to meet not only Buffett and his partner Charlie Munger, but also director Bill Gates, the founder of Microsoft, Webb said.

"Suddenly, people were in front of the two richest men in the world," Webb said. "It was a bit overwhelming for some."

While overwhelming, the growing importance of the international shareholder meeting illustrates Buffett's increasing focus on investment opportunities outside the U.S., Webb and other investors said on Sunday.

On Friday, Berkshire announced the acquisition of an 80% stake in Israeli metal cutting tool manufacturer Iscar Metalworking Cos. for $4 billion.

The following day during the main annual meeting, Buffett noted that Iscar was the first ever company that Berkshire bought that was based outside the U.S. and hinted that he would be making more acquisitions abroad. See full story.

"Buffet and Munger are expanding their hunting ground from the U.S. to the entire world," said Whitney Tilson, head of money management firm Tilson Capital Partners and a Berkshire shareholder. "They've taken a big step in that direction with the Iscar acquisition."

Part of this strategy is tied to Buffett's increasing concern about the U.S.'s growing trade imbalances and their potential to weaken the U.S. dollar. In 2002, he increased Berkshire's bets against the dollar and more recently he's invested more money in overseas assets to hedge against a decline in the greenback.

But more international acquisitions could also help Berkshire find better places to invest its cash pile of roughly $40 billion. The company has been under increasing pressure to put the money to work or use it to buy back shares or even pay a dividend -- things that Buffett has almost always shunned.

The international shareholder gathering at Berkshire's annual meeting is a great way for Buffett to showcase the company abroad as a benevolent acquirer, Tilson said.

"These shareholders are potential ambassadors who may go back to their countries and start singing the praises of Berkshire to people like the owners of Iscar," Tilson added.

International expansion may also help Buffett track down more family-owned businesses.

When buying family-run businesses like Iscar, Berkshire has an advantage over private-equity funds because it has a reputation for not meddling much with the firms it controls.

While strong capital markets in the U.S. mean there are fewer private, family-owned businesses available. But in other, less developed countries, there are many companies that have grown large without accessing public markets, Thomas Russo, a partner at Lancaster, Penn.-based investment firm Gardner Russo & Gardner, said.

"In the acquisition world, Warren has long cultivated his presence among family business owners who at some point may wish to transfer their corporate assets to a trustworthy home and receive money for that," Russo, a Berkshire investor since the mid-1980s, said. "Berkshire has clearly put itself forward as the best acquirer for families who care about what happens to their businesses after selling."

While Berkshire has gotten this message out well for years in the U.S., Russo said Buffett has begun using the international shareholder gatherings to spread the word abroad.

"The message goes home with these investors that Berkshire is a special kind of place," Russo added. "Buffett's broadening awareness among foreign, family-owned companies that Berkshire is the kind of respectful place that they'll want to transfer their business to."

Still, more overseas acquisitions could increase risks for Berkshire, Webb said, citing the Iscar purchase.

Iscar's business could be quite capital intensive and it sells to trade customers rather than consumers, two unusual attributes for a Berkshire company, he noted.

Political tension in Israel may also carry risks, Webb added.

"Over time his style has had to change and it maybe changing slightly now as he reacts to circumstances," Webb added. "The Iscar deal is so unusual that he may be pushing the edge of his investing style."

Still, during a press conference on Sunday, Buffett said Iscar was "within our circle of competence" and Israel's political situation wasn't a concern.

"We think Israeli will be around in five, 10, 15 and 100 years," he said. "It wasn't a concern."
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Buffett solves his cash crisis
Good deals are scarce and the billions are piling up, so Berkshire will look to private outfits abroad to put its war chest to work.
By Jason Zweig, MONEY Magazine senior editor
May 7, 2006: 12:38 PM EDT

OMAHA (CNN/Money) - If every year you had more cash than the year before, would you have a problem with that? If every year you had a lot more cash than the year before, would you have a problem with that? And if, at last count, your cash had piled up to $37 billion, would you have a problem with that?

You would if you were Warren Buffett -- and this embarrassment of riches has been bothering the chairman of Berkshire Hathaway (Research) Inc. for years.

That's why his announcement this week that he is spending $4 billion in cash to buy Iscar, an Israeli-based machine-tool maker, is so important. "It's the first business we've purchased that's based outside the US," Buffett said on Saturday in his remarks to 24,000 shareholders assembled at Berkshire's annual meeting in Omaha. "I think we'll look back on this in five or ten years and see this as a very significant event in Berkshire's history."

A turning point
The Iscar purchase is a sign that Buffett and his vice chairman, Charles Munger, may be finding a way out of Berkshire's unique kind of cash crisis. Most companies struggle to produce excess cash after paying all their costs. Buffett's investments are so lucrative that he struggles to find ways to put all their excess cash to work.

Those billions in cash are a problem for Buffett because:

• Interest rates are low, so idle money earns meager returns.

• He believes the value of the US dollar will decline for years to come, making cash a wasting asset that may be worth less with each passing year.

• At Berkshire's current market capitalization of roughly $130 billion, it's hard for Buffett to find publicly traded stocks both cheap enough and big enough to make a difference in his company's overall results.

• The hundreds of billions of dollars pouring into hedge funds and private equity funds have made it difficult to buy private businesses in the US at fair prices.

All these factors combine to make Buffett's original game – buying small, publicly traded US companies – next to impossible. And they make it almost as hard to buy bigger US stocks, too. At Saturday's annual meeting, Buffett revealed that Berkshire – which as of March had $37 billion in cash – is looking at one acquisition for about $15 billion in cash. (He, Bill Gates, and the royal family of Saudi Arabia may be the only people alive who could consider such a thing.) But he warned sternly that this particular deal has a "low probability" of occurring.

"We don't like excess cash," said Buffett, "but we like dumb deals even less. It's likely, but far from certain, that three years from now we will have significantly less cash." And how much less is "significantly" less? "We don't need anything remotely like $40 billion [in cash]," explained Buffett. "We would be much happier if we had $10 billion." (Hey, who wouldn't?)

No dividend
So how will Buffett get rid of all that extra cash? To me, the most interesting thing about his remarks at this year's meeting was the word he never uttered: dividend. In years past, Buffett has admitted that if he could not find a better use for the mountain of cash that his shareholders have entrusted him with, then he would have to consider paying out a special dividend, much as Microsoft (Research) did in 2004. This year he never spoke the D-word, which suggests to me that the Iscar deal may be a template for a new solution to his cash problem. Iscar has several advantages:

• Based in Israel and operating mainly outside the US, it generates most of its cash in foreign currency.

• It was a private transaction, so Buffett did not have to outbid competitors in a public auction.

• It was a sizable deal, enabling him to put a good chunk of cash to work at once.

• And, most importantly, it will send a signal to major family-owned businesses around the world that Buffett is now a buyer of choice beyond the borders of the US. By turning the Wertheimer family, the main owners of Iscar, into instant billionaires, Buffett has sent out a wake-up call to similar potential partners everywhere.

It's important to realize what's going on inside Buffett and Munger's heads. They view capital allocation – how the cash should be redirected among the dozens of different businesses that make up Berkshire Hathaway – as their single most important responsibility. They also think they can add at least as much value with smart capital allocation as they can with smart stock picking. After all, inside a conglomerate like Berkshire, even a business with only marginal profits can be valuable if Buffett and Munger can redirect its excess cash to a faster-growing division that has a better use for the capital.

With each passing year, they seem to become a little less interested in buying small stakes of companies that trade in the stock market – and more interested in buying majority holdings in private businesses. That, they believe, is how they can now get the biggest bang for their big bucks.

Buffett and Munger are more thoughtful about what to do with cash than any other business leaders in America. That's because they know that cash is like most good things in life: It takes only a tiny bit too much to turn it from a blessing into a curse.

As Buffett's mentor, Benjamin Graham, explained in Chapter 19 of his book The Intelligent Investor, the better a boss is at managing the operations of his business, the worse he is likely to be at managing its finances. That's because a well-managed business mints money – and those piles of cash lead to temptation.

Most corporate managers could find 37 billion ways to spend $37 billion – nearly all of them bad. They might go on an acquisition binge, paying any cost and bearing any burden to buy any company they came across. They might build a 60-story skyscraper with their name on it, expand their product lines into markets they knew nothing about, or spend a fortune on research and development for goods that nobody wanted.

Even more likely, they would pay themselves hundreds of millions of dollars in stock options, then spend even more money to buy back the company's shares on the open market. They would call this "enhancing shareholder value," since it would supposedly keep the new stock options from "diluting" the stake of existing shareholders.

For several years Buffett seems to have been casting about, trying to find a way to solve his peculiar cash crisis without having to admit defeat and pay out a big (and taxable) dividend. The Iscar deal is a strong hint that he may have largely solved this problem. Of the $25 billion to $30 billion that Buffett hopes to invest over the next few years, it wouldn't surprise me a bit if the lion's share of it went into private companies based outside the U.S.

Welcome to Warren's World.
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Buffett: Real estate slowdown ahead
The Oracle of Omaha expects the housing market to see "significant downward adjustments," and warns on mortgage financing.
By Jason Zweig, MONEY Magazine senior editor
May 7, 2006: 11:54 AM EDT

OMAHA (CNN/Money) - At this weekend's annual meeting of Warren Buffett's Berkshire Hathaway, security is tighter than usual, with several entrances to the parking lot of the Qwest convention center closed.

This may have something to do with Buffett's announcement yesterday of his purchase of an 80% stake in Iscar, an Israeli-based metal cutting tools firm, for $4 billion. In one fell swoop, that makes him one of the biggest foreign investors in Israel. With that news, a little extra security amidst the sea of the roughly 20,000 shareholders and acolytes in attendance can't hurt.

Regardless, Buffett and Berkshire Hathaway (Research) vice chairman Charles Munger threw Saturday's entire morning open to a question and answer session with shareholders just as they do every year. With no major scandal or news event in the foreground, Buffett and Munger struck a more reserved tone than they have at past meetings.

But their views on housing prices and the energy and commodity markets may ruffle some feathers. Buffett played his usual role of the talkative, cheery extrovert, speaking in perfect paragraphs, while Munger took the role of the laconic, crotchety critic whose favorite sentence is "I have nothing further to add."

These are not just their stage personas, but how they normally think and speak. What follows is an edited and approximate transcript of their remarks.

On the real estate bubble
Buffett: "What we see in our residential brokerage business [HomeServices of America, the nation's second-largest realtor] is a slowdown everyplace, most dramatically in the formerly hottest markets. [Buffett singled out Dade and Broward counties in Florida as an area that has experienced a rise in unsold inventory and a stagnation in price.] The day traders of the Internet moved into trading condos, and that kind a speculation can produce a market that can move in a big way. You can get real discontinuities. We've had a real bubble to some degree. I would be surprised if there aren't some significant downward adjustments, especially in the higher end of the housing market."

On mortgage financing
Munger: "There is a lot of ridiculous credit being extended in the U.S. housing sector."

Buffett: "Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it Any developer will build anything he can borrow against. If you look at the 10Ks that are getting filed [by banks] and compare them just against last year's 10Ks, and look at their balances of 'interest accrued but not paid,' you'll see some very interesting statistics [implying that many homeowners are no longer able to service their current debt]."

On a commodities bubble
Buffett: "I don't think there's a bubble in agricultural commodities like wheat, corn and soybeans. But in metals and oil there's been a terrific [price] move. It's like most trends: At the beginning, it's driven by fundamentals, then speculation takes over. As the old saying goes, what the wise man does in the beginning, fools do in the end. With any asset class that has a big move, first the fundamentals attract speculation, then the speculation becomes dominant.

Once a price history develops, and people hear that their neighbor made a lot of money on something, that impulse takes over, and we're seeing that in commodities and housing...Orgies tend to be wildest toward the end. It's like being Cinderella at the ball. You know that at midnight everything's going to turn back to pumpkins & mice. But you look around and say, 'one more dance,' and so does everyone else. The party does get to be more fun -- and besides, there are no clocks on the wall. And then suddenly the clock strikes 12, and everything turns back to pumpkins and mice."

On ethanol
Buffett: "Charlie [Munger] and I do not know enough about the business to evaluate it. It depends on government policy and a lot of other variables we're not good at predicting. It's also a very hot area for investors right now, and we don't like looking at things that are hot and easy to raise money for. Generally speaking, agricultural processing businesses have not earned high returns on tangible capital. Ethanol could prove an exception, but I'm not sure how you gain a competitive advantage with any particular ethanol plant."
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Buffett Looks to Buy Overseas, Voices Concerns About Dollar

By KAREN RICHARDSON and ALISTAIR BARR
May 7, 2006 2:12 a.m.

OMAHA, Neb. -- Berkshire Hathaway Inc. is likely to buy more companies overseas, partly to hedge against Chairman Warren Buffett's belief that the U.S. dollar will weaken significantly.

Speaking to some 24,000 Berkshire shareholders on Saturday at the company's annual meeting in Omaha, Neb., Mr. Buffett and Vice Chairman Charlie Munger laid out bearish and sometimes contrarian views of U.S. fiscal policy, speculation in the commodity and housing markets and the short-term investment strategies of hedge funds and private-equity firms.

Berkshire's latest agreement to purchase an 80% stake in Iscar Metalworking Co., an Israeli metal-cutting tool maker, fits into Mr. Buffett's plan to increase the diversification of Berkshire's earnings in terms of currencies as a way to protect from a sharp drop in the value of the U.S. dollar. Berkshire announced the $4 billion deal on Friday.

"We will have at Berkshire a fair amount of our earning power coming from other currencies and countries," said Mr. Buffett, who said he plans to return to Israel to look for more businesses to buy. He added, however, that Berkshire, which owns more than 40 different businesses, "will always be predominantly in the U.S."

Mr. Buffett said he was working on a $15 billion acquisition, which would help Berkshire put some of its nearly $45 billion in cash to work, but he said there was a "low probability" of completing the deal. He didn't disclose any other details about the potential purchase.

Late last year, Mr. Buffett trimmed the more than $21 billion Berkshire had invested in foreign-exchange contracts and started buying more foreign stocks. He said that as interest rates in the U.S. began rising in mid-2005, investing directly in foreign currencies became less attractive. But the continuing weakness of the dollar despite the higher rates strengthened his view that Berkshire needed to invest in companies and securities overseas to protect itself from a possible sharp fall in the greenback.

A sharp revaluation of the dollar would likely lead to "chaotic markets," said Mr. Buffett. While he couldn't predict the timing, he said "the currency markets will play a part in the rush to the door."

Mr. Buffett blamed, as he has in the past, the growing current-account deficit in the U.S. and the country's trade imbalances with other nations, such as China, saying these could cause a painful correction in the dollar and also lead to "significantly" higher inflation. "The more you owe, the more it becomes attractive to devalue the currency" in which your debts are denominated, he said.

Despite their bearish views -- ranging from the behavior of bankruptcy courts (poor) to the possibility of a nuclear annihilation in the next 60 to 70 years (highly likely) -- Messrs. Buffett and Munger kept their shareholders entertained. In a humorous film at the start of the meeting, they starred in an animated spoof of "American Idol," with rapper Snoop Dogg and a caricature of Dick Cheney, dressed in orange hunting gear and toting automatic weapons, as contestants. Another skit involved the five female leads of "Desperate Housewives," discussing the merits of Mr. Buffett. "With a mind like that, he must be incredible in the sack," one of them cooed.

When the Clock Strikes Midnight

Speculation, instead of fundamentals, has begun to drive the commodity and, to some extent, the housing markets, Mr. Buffett warned. The commodities bubble, in particular, could end badly for investors, like Cinderella's race with the clock. "At the start of the party, the punch is flowing and everything's going well, but you know at midnight it's all going to turn into pumpkins and mice," he said.

Messrs. Buffett and Munger poked fun at private-equity firms and hedge funds, calling them "deal flippers" interested only in making large gains, rather than having lasting ownership of companies. Mr. Munger said the current private-equity environment -- in which some firms have been bidding up the prices of assets they want to buy regardless of their value -- reminded him of the 1930s, when people could borrow more money against their real estate than what they could sell the real estate for. "That's weird. That's really weird," he said.

Just as the two executives in the past have criticized the ability of the Black-Scholes model -- the prevailing method used by banks and investors to price options -- to properly value longer-dated derivatives, Mr. Munger lamented that many investment professionals get caught up in using strict quantitative methods to pick stocks. "Investors should measure all their investments against their best investment, which should serve as their opportunity cost. That's the best way to invest," he said. "That's why modern portfolio theory is so asinine," he added, referring to the investment theory that uses various quantitative measures of risk and return to assess the relative attractiveness of assets.

On another hot topic, Mr. Buffett said he has no problems with short sellers and naked short sellers, who bet against stock that they haven't borrowed.

"From our standpoint, we have no objection to people selling Berkshire short," Mr. Buffett added. "There's nothing I would love better than to be paid to lend out my shares to people who would short Berkshire shares," he said, referring to the high interest rates stock-lending brokers charge short sellers to borrow hard-to-borrow stock.
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Omaha Notebook: Fat Cats And Desperate Housewives

By KAREN RICHARDSON of The Wall Street Journal and ALISTAIR BARR of MarketWatch
May 6, 2006 6:35 p.m.

The annual shareholder gathering at Berkshire Hathaway's headquarters in Omaha on Saturday, often called "Woodstock for capitalists," included bling, a merger deal and appearances by the "Desperate Housewives" cast. Here are dispatches from the meeting.

* * *
Flipping and Flipping and Flipping…

Never ones to hold back, Berkshire Hathaway Chairman Warren Buffett and Vice Chairman Charlie Munger reserved some of their most caustic remarks at this year's annual meeting for private-equity firms.

These buyout funds raised a record $100 billion in 2005 and are now looking to put that money to work in acquisitions. That's making Berkshire's own quest for acquisitions more difficult.

Berkshire is trying to maintain an advantage by focusing on family-run businesses that may not want to sell to owners like private-equity firms that have a reputation for selling out quickly and changing management or strategy.

"We have so many deal flippers in the game I think they're going to get in each others' way," Munger said.

How will private-equity firms continue to make money by just "flipping and flipping and flipping and flipping?" Munger wondered aloud.

"They'll make it on fees, fees, fees," Buffett answered quickly.

Later, Buffett said that when he gets an offer to buy a business from a private-equity firm, he "puts the phone down faster than Charlie."

"They invariably auction the business and are looking for strategic buyers," Buffett said, adding that "a strategic buyer is just someone who pays too much."

Munger compared the current private-equity boom to real-estate speculation in the 1930s.

"In the real estate market in the 1930s you could borrow more money against some real estate assets than you could sell them for," he explained. "That's happening now in some parts of the private-equity world and it's weird."

--Alistair Barr

* * *
The Biggest Laugh

Berkshire Vice Chairman Charlie Munger tickled the crowd at the annual meeting with other caustic witticisms at the expense of a variety of targets from the world of business and finance.

Munger said compensation at investment banks was driven higher by a "frenzy of envy."

Some of the current "dumb lending" by financial institutions is accompanied by "contemptuous accounting," he explained.

"Half of students at the elite Eastern business schools I've heard want to go to private-equity funds or hedge funds," Munger complained later in the meeting. "They seem to judge their progress in life by using Goldman Sachs as the minimum standard. This can't possibly end well."

The biggest laugh of the day came when Munger was asked what he thought about the theories of Wharton business school professor Jeremy Siegel. "I think he's demented," Munger said.

But some of Munger's comments also contained the usual refreshing dose of doom and gloom.

"The chances of another nuclear device being used on purpose over the next 60 or 70 years is very high," he predicted. "There's not much anyone can do about it."

Munger's view of the $2 billion that Berkshire has made hedging against the U.S. dollar in recent years: "It has been a very profitable non-event."

And finally: "If there was a fire in this auditorium now, there would be a lot of weird behavior."

--Alistair Barr

* * *
Selling Berkshire Short

Warren Buffett said he has no problems with short sellers and naked short sellers, who bet against stock that they haven't borrowed. "I don't have a great problem with that," said Mr. Buffett about naked short selling. "If anybody wants to do that with Berkshire, more power to them."

Mr. Buffett acknowledged that he has a "friend" who is very concerned with naked short selling, a reference to Patrick Byrne, the chairman and chief executive of Overstock.com, an online "close-out" retailer. He said that while the many companies that attract a lot of interest from short sellers "very often" are later revealed to be frauds, he noted that "The one my friend runs is not at all." Mr. Buffett and Mr. Byrne go back a long way; Mr. Byrne's father, Jack Byrne, was long-time head of Geico, Berkshire's automobile-insurance subsidiary.

"From our standpoint, we have no objection to people selling Berkshire short," Mr. Buffett added. "There's nothing I would love better than to be paid to lend out my shares to people who would short Berkshire shares," he said, referring to the high interest rates stock-lending brokers charge short sellers to borrow hard-to-borrow stock.

As for allegations that short sellers often try to "do things," sometimes inappropriately, to push down the prices of stocks so that they can profit, Mr. Buffett said some long-only investors also try to push up share prices inappropriately. "I have no ax to grind against short sellers," he said.

Mr. Munger, his business partner, noted that short selling is a difficult way to make a living. "It would be the most irritating thing in the world" to short a stock that soon tripled, with "the happy crooks flashing your money around while you're trying to meet margin calls," he said.

--Karen Richardson

* * *
From 12 to 24,000

There was a full house in Omaha's Qwest Stadium, the overflow room was packed, and more than a thousand shareholders flew in from around the world, including Thailand, Australia, Germany and Japan, for the annual Berkshire Hathaway Inc. meeting. In the exhibition hall, hundreds bought See's chocolates, signed up for Geico insurance and posed astride a taxidermied longhorn at the booth for Justin Brands, a Berkshire unit that makes cowboy boots. Three hours into the question-and-answer session, Chairman Warren Buffett announced attendance at this year's meeting is about 24,000 -- higher than last year's.

About 25 years ago, only 12 people attended the annual meeting, including staff, one of Mr. Buffett's uncles and one of his aunts.

--Karen Richardson

* * *
Desperately Seeking Warren

The main cast members of the popular television show, "Desperate Housewives," appeared in the annual Berkshire "movie," a half-hour collection of skits, features, interviews and commercials of Coca-Cola, Geico, Dairy Queen and other Berkshire companies, shown ahead of the question-and-answer session.

Eva Longoria, Teri Hatcher, Felicity Huffman, Nicolette Sheridan and Marcia Cross discuss the merits of a potential catch, Warren Buffett.: "You know, rumpled, kind of pasty white." After they debate his advantages ("He's a financial genius" and "He owns a fleet of private jets"), Ms. Sheridan concludes, "With a mind like that, he must be incredible in the sack. Your greatest sex organ is your brain, obviously he has a big one."

She walks out, and later returns saying, "I wasn't his type, but I found another billionaire." Charlie Munger, Mr. Buffett's longtime, octogenarian business partner, walks in after her and approaches the table. "Deal me in," he says.

Another scene played off of Mr. Buffett's distaste for Internet investments. The chairman suddenly becomes obsessed with Internet shares and calls Mr. Munger to try to persuade him that Berkshire should load up. Mr. Munger flat-out refuses. In desperation, Mr. Buffett calls actress Jamie Lee Curtis, who Charlie apparently adores. The actress agrees to call Mr. Munger.

"Is that Charlie Hunger? I mean Munger?" breathes Ms. Curtis over the phone, and proceeds to describe the benefits of investing in the Internet. After less than 30 seconds, Mr. Munger is a convert.

The movie featured several other celebrities, including Ellen DeGeneres, who toured a See's Candies factory and engaged in her trademark dance with the factory workers; Snoop Dogg, who lent his voice to his own animated character in a spoof of "American Idol"; California Gov. Arnold Schwarzenegger, and Microsoft Corp. Chairman Bill Gates, also a Berkshire board member.

--Karen Richardson and Alistair Barr

* * *
What's Iscar Metalworking?

At money manager Whitney Tilson's value-investing soiree on Friday in Omaha, no one had heard of Iscar Metalworking Cos., the Israeli family-run maker of metal-cutting tools that Berkshire Hathaway agreed to buy this week in a deal valued at $5 billion.

"Is it a private company?" asked one Berkshire shareholder.

"What does it do?" a fund manager asked.

At a time when Berkshire is competing for acquisitions with newly minted private-equity firms and hedge funds dabbling in the buyout business, Iscar's obscurity is probably a good thing, some investors theorized. If no one had heard of it, Warren Buffett must have got a good price.

"He has to go further and further afield to find good acquisitions now," said Lloyd Khaner, general partner of investment firm Khaner Capital Management. "Most people are probably too worried by the political situation in Israel to invest so much, but in five years, the country will probably be booming and we'll all be wondering why we didn't buy a metal-cutting business there!"

--Alistair Barr

* * *
Fat Cats

Among the 13-carat diamonds and designer jewelry on offer at Berkshire subsidiary Borsheim's on Friday evening, Berkshire shareholders could also purchase the final installment in a decade-long series of ornaments designed by Christopher Radko especially for the annual meetings.

The tenth in the series is called Fat Cat, a four-to-five inch high, overweight feline wearing a string of bulging pearls. Coincidence? Or was this designed specifically to accompany Warren Buffett's scathing criticism of executive pay in this year's shareholder letter?

"Too often, executive compensation in the U.S. is ridiculously out of line with performance," Mr. Buffett wrote, noting that while serving as a director of twenty public companies during his career, a chief executive put him on the compensation committee just once.

A spokeswoman for Borsheim's, one of the largest jewelers in the U.S., said she didn't know whether this year's ornament was designed with CEO pay in mind.

--Alistair Barr

* * *
Age Question Gets Old

Shareholders milling around at the annual meeting exhibit hall this year were unfazed by questions raised by Warren Buffett's advancing years and who may succeed him as chairman of Berkshire Hathaway when the time comes.

"There's too much emphasis on numbers. As long as he's viable and able to run the company, it doesn't matter how old he is," said Beverly Burchfield, who became a Berkshire shareholder this year for the first time. "I'm getting up there myself, so it's good to see him doing so well."

"I don't care," said Vivian Flynn, a Berkshire shareholder of 15 years, visiting from Lexington, Ky. "Berkshire has a wonderful set of businesses and that probably won't change. If someone were to come in after Mr. Buffett and sell off some of those companies, that would be bad."

G.B. Dunning, a psychiatrist and the former editor of the Clay County Times newspaper, said Mr. Buffett "has covered his bases pretty well on the succession issue."

After Mr. Buffett dies, or becomes unable to run Berkshire, the company's stock could fall temporarily "because the company has been built by, and around, him," said Mr. Dunning, who owns one Class A Berkshire share. But Mr. Buffett's skill at picking top managers for his subsidiaries means he'll also likely do a great job selecting his successor, Dr. Dunning added.

--Alistair Barr

* * *
Yes, Mr. Buffett Is Rich

As thousands of shareholders swarmed into the Qwest Center in Omaha for the annual Berkshire meeting on Saturday morning, Mr. Buffett treated some of them to a close-up glimpse as he visited managers and staff of his conglomerate's 40-plus units in the center's exhibition hall. He ended up straddling a motorcycle and jumping into a model of an Indy racecar. At the Dairy Queen exhibit, he stopped by a cooler and picked out an orange Dilly Bar and paid the attendant $1 for it. He stopped by Johns Manville and Benjamin Moore, which supply paint and other home-building products, and played a computer game that required him to paint a wall with a mouse-controlled spray nozzle as quickly as possible. "Now you know why they don't give me a job," he said after his time ran out.

Mr. Buffett, followed by a growing mass of camera-toting shareholders, sat on a Logic low-rider motorcycle at the Geico exhibit, where the automobile insurer's trademark Gecko watched nearby. The chairman, who for many years has driven a Lincoln Town Car, donned a helmet emblazoned with "W.E. Buffett" and squeezed himself into the tiny seat of a new model Indianapolis 500 racecar. "It's my billfold that's causing the problem here," he quipped, while handing his wallet over to Tony Nicely, Geico's chief executive.

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Eitan Wertheimer: Buffett eager for more Israeli cos

Following the sale of 80% of Iscar to Buffett for $4 billion, Wertheimer said, “ the deal took 10 minutes to close; we'll pay 25% tax."

Gali Weinreb, Omaha, Nebraska 7 May 06 13:35

Eitan Wertheimer, the 53 year old son of Stef Wertheimer and president of the business empire his father built, will become one of Israel’s richest men, following the acquisition of Iscar by Warren Buffett. In an interview with “Globes” in Omaha, Nebraska, Wertheimer explains what led Buffet to acquire Iscar and talks about whether he will be likely to follow this with acquisitions of other Israeli companies.

Globes: Do you believe Buffet will make a further acquisition in Israel in the near future?

Wertheimer:” Buffett told me he is waiting for calls from Israeli companies that meet his criteria like a 16 year-old girl waiting for a call from her first date.”

Are there any other Israeli companies that meet those criteria?

”There are a number, although these are not necessarily public companies that are always in the news, and not necessarily companies the size of Iscar, but also $50 million companies.”

Why did you chose to sell the company to Buffett, rather than make an IPO?

”If money was our only consideration, we could have got more from an IPO, a buy-out, or a merger with competitors in the industry, but Buffett gave us the feeling of the best fit since he generally does not interfere in the management of companies he invests in. This will enable us to continue running the company as we have done up to now.”

If the company is so successful, why did you sell?

”We felt we had reached a point where bringing in a partner into the company would help it grow. Cooperation with Buffett will help the company with its and also enable us to acquire further companies. Take for example the US automobile industry, which is a very important target for Iscar. It is an extremely closed community that likes working with US enterprises and it will therefore be happy to work with Buffett’s Berkshire Hathaway Group (NYSE: BRK.A and BRK.B).”

The sale process began back in October 2005, when Iscar learned was told by someone close to it that “there is someone in the US who does things differently.” Wertheimer did some checking of his own and found out that this was indeed correct. Iscar wrote to Buffett enclosing its summary financial data. The reply came back within a matter of hours.

Soon after, Iscar representatives met with Buffett and then his business partner Charles T. Munger, who gave them a cold shower, which it later transpired was a test of the company’s resilience. Munger now describes them as “not unwise”, something which is considered a compliment from someone like him.

Wertheimer made several more visits to the US. He claims the deal was closed in a private meeting with Buffett on March 22, which lasted 10 minutes. “Buffett said he wanted to complete the process by May 6, the date of Berkshire Hawathay’s investors’ meeting, and this led to the whole process being speeded up.”

Buffett didn’t bother to come to Israel to learn more about Iscar and was satisfied with his meeting with the company management. He did, however, make an in-depth study of the company’s financial data and Wertheimer notes that “he knew more about the details than anyone.” Wertheimer adds that Buffett was especially interested to learn about the company’s stable growth during the last 20 years as well as its financial ratios.

The Wertheimer family has a longstanding policy of jealously guarding against disclosure of financial data about Iscar. They claimed that the company’s size and financial reporting method made it impossible to disclose specific data about Iscar, without such data becoming common knowledge. Berkshire Hathaway reports on the sectors it invests in and has plenty of activities in Iscar’s sector but even they couldn’t find out about its financial performance.

Why have you avoided disclosing Iscar’s data?

”Any figure will constitute a weapon for our competitors.”

Under the agreement between Buffett and Iscar, the company will retain its current employees and also recruit additional staff, especially engineers. The existing management team will also be retained.

What do you plan to do with the money you have received?

”Some of the money will be channeled into new businesses and some will be appropriated for non-business activities. If Iscar needs a further investment, this may also be financed from these funds. Bear in mind that the sum in question is $4 billion of which $3 billion will be left after taxes”.

In 1997, Wertheimer acquired Discount Investment Corporation (TASE: DISI)’s stake in Iscar at a company value of $800 million. Wertheimer claims that the substantial increase in value since then (to $5 billion today) was due primarily to the company’s growth during the last nine years.

”They were good partners for many years,” says Wertheimer about the painful and historic parting of company with IDB. “At a certain stage, the management changed and the new people did not understand anything about entrepreneurship, so we had to go our separate ways. IDB has companies in its group that have entrepreneurial flair and could be even more successful if IDB was more open to entrepreneurship companies such as Scitex (Nasdaq: SCIX; TASE: SCIX).”
-----------------------------
Warren Buffett buys 80% of Iscar for $4 billion

The deal is the largest ever acquisition by Buffett outside the US, and makes the Wertheimer family the wealthiest in Israel.

Globes correspondent 7 May 06 07:51

Warren Buffett's investment company Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B) and Israeli company Iscar, Ltd. announced on Friday that that Berkshire Hathaway had agreed to acquire 80% of the Iscar Metalworking Companies (IMC) in a transaction that values IMC at $5 billion.

The Iscar Metalworking Companies, owned by the Wertheimer family, has operations worldwide, and is an industry leader in the metal cutting tools business through its Iscar, TaeguTec, Ingersoll and other IMC group companies. Upon completion of the transaction, Berkshire will own 80% of the business and the Wertheimer family will own the remaining 20%.The transaction remains subject to customary closing conditions, including regulatory approvals.

The deal is the largest ever acquisition by Buffett outside the US, and makes the Wertheimers Israel's wealthiest family.

After becoming a part of the Berkshire family of businesses, IMC will continue to be managed by its current management team, including Chairman Eitan Wertheimer and President and Chief Executive Officer Jacob Harpaz, as well as the rest of its current worldwide management team. IMC will remain headquartered in Tefen, Israel, and its worldwide business operations will continue as usual.

“We are delighted to partner with the Wertheimer family and IMC's current management, led by Eitan Wertheimer and Jacob Harpaz,“ said Buffett. “As a truly international business, IMC is a top performer in its industry, with exposure to European, Asian and Latin American markets, as well as significant opportunities for growth as it continues to penetrate the North American market. My partner, Charlie Munger, and I have been impressed by IMC's simple and profitable business model. With this acquisition, we have the benefit of investing in a stable business with very significant growth prospects.“

“As a member of the Berkshire family we'll have the benefit of a strong platform that's committed to continuing our historical success,“ said Eitan Wertheimer. “This transaction is not only significant for our company, our customers and our employees, but also for our industry, and for the State of Israel. We are gratified by Berkshire's investment in the group, and proud of what we have achieved since Iscar's founding more than 50 years ago by my father Stef Wertheimer, who will continue to lend his vision to the group. We are looking forward to a long and profitable partnership with Berkshire Hathaway.“
-----------------------
Iscar: One of Israel’s largest businesses, and wholly private

The company’s value was estimated at $2.5 billion at the beginning of 2005.

Globes’ correspondent 7 May 06 14:25

Iscar Ltd., one of Israel’s largest companies, was founded as a private company and has never raised capital on the Tel Aviv Stock Exchange (TASE). Iscar honorary chairman Stef Wertheimer has owned the company since he founded it over 30 years ago.

Iscar manufactures metal cutting tools, and reportedly had over $1 billion in sales in 2005. The company’s value was estimated at $2.5 billion at the beginning of 2005. The Wertheimer family’s fortune is estimated at over $3 billion. The family’s main holdings are Iscar and Blades Technology Ltd.

In addition to these two companies, Stef Wertheimer and his son Eitan have invested in dozens of Israeli high-tech and medical devices companies, including Micro Tools Ltd.. Founded in 1981 and based at Tefen, Micro Tools has tens of millions of dollars in exports. Its customers include leading computer, electronics, and optics manufacturers, such as IBM (NYSE:IBM) and Motorola (NYSE:MOT).

Stef Wertheimer also owns 50% of Nahariya-based Lachmi bakery, founded by his first wife and mother of his children, who passed away many years ago. Other Wertheimer holdings include Powder Coating Composites Ltd. and Netzer Precision Motor Sensors Ltd..

Eitan Wertheimer’s investment arm, Microdent Ventures has invested has invested in start-ups Comsys Communications and Signal Processing Ltd., ExaNet Ltd., and HyperRoll Inc.. He is also a shareholder in Orsus Solutions Ltd. and has invested in OrthoScan Ltd. and dozens of other companies.

Iscar, known internationally as Industrial Metalworking Companies (IMC) currently has three core companies with over 60 subsidiaries worldwide. IMC has over 5,000 employees, including 1,500 in Israel.

IMC’s main company, Iscar, has dozens of branches and manufacturing plants in other countries. Iscar’s subsidiaries include an Italian company that makes diamond cutting tools, as well as companies in Germany and France.

The second arm, TaeguTec Co. has a huge plant in South Korea, and a joint venture with Hindustan Aeronautics Ltd. (HAL) in India that makes aircraft engine components.

The third arm, Ingersoll Cutting Tools has a factory in Germany for the European market and another in Frankfort, Illinois, for the US market.
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Buffett buy boosts Tel Aviv Stock Exchange to record high

By Guy Rolnik, Haaretz Correspondent, and Haaretz Service

OMAHA, Nebraska - U.S. tycoon Warren Buffett's landmark deal to buy 80 percent of Galilee-based Iscar Metalworking for $4 billion, propelled the Tel Aviv Stock Exchange to record levels on Sunday, the first trading day after the transaction was announced the day before.

The Tel Aviv 100 Index, rising 1.78 percentage points in early trading, broke through the 900 point barrier for the first time. The Tel Aviv 25 Index rose 1.69 percentage points, while the Tel-Tech Index was up 1.36.

Prime Minister Ehud Olmert, hailing the deal, told the first meeting of his new cabinet Sunday: "This is not just another deal of billions. Here, we are speaking of the greatest investor on the face of the Earth. He's not a Jew. He's not a Zionist. He is just saying that Israel's economy is such that he supports it, and sees in it what we, in our dreams, hesitate to say."

Buffett, referring to his first significant deal outside the United States, hinted in an interview with Haaretz' TheMarker that he may buy additional Israeli companies.

The move is the third largest deal Buffet has ever made.

"We are investing $4 billion in an amazing band of people from Israel," Buffett told TheMarker on Saturday. "If your readers know a company that resembles Iscar, even a little, have them call me immediately. I want to buy. Let them call me collect."

The deal values Iscar, a leading private manufacturer of advanced cutting tools, at $5 billion and will make its owners, Stef and Eitan Wertheimer, the richest family in Israel. Iscar has its factories concentrated in the Tefen industrial zone and has additional plants around the world.

Buffett, chair and CEO of Berkshire Hathaway told TheMarker that "in another five or ten years, we'll look back and understand that what we declared here is one of the most significant things Berkshire Hathaway has ever done. Iscar will be a very large and important company."

Asked what he intended to do with management after acquiring the company, Buffett responded, "We'll let them be. This is why we bought the company. At Berkshire we are 16 people in total, even though the companies in our investment portfolio employ 200,000 people. Our job is only to choose the best players, and usually, like in Iscar's case, the players are there when we buy the companies. I wouldn't dream of changing Iscar's management make-up."

Buffett noted he expects the entire Iscar management to remain in place, including President Jacob Harpaz. Iscar President Eitan Wertheimer said that "as members of the Berkshire family, we'll be able to enjoy a stable platform committed to ongoing success."

Prime Minister Ehud Olmert called Eitan Wertheimer last night to congratulate him on the sale. "It's terrific tidings and a great gift to the State of Israel", Olmert said. "We tip our hat to you, personally and in the name of the whole country." The Prime Minister's Office commented that Wertheimer "thanked the prime minister."

Eitan Wertheimer said selling the company for him is "lighting an economic torch," just as his father Stef lit a torch on Independence Day. According to him, Buffett's expression of faith is an important declaration for the country, "and just as they talked about the Balfour Declaration - now they'll talk about the Buffett Declaration." Olmert will speak with Buffett today. A government source said Olmert was indirectly involved in the deal.

Buffett told the annual meeting yesterday that he plans to visit Israel this year.

 

Just so you know, the Berkshire site hasn't been updated yet. Will post when it has.