Buffett Pays $2.05 Billion for Remaining 20% Stake in Iscar at $10B Valuation, Doubled from $5B Value in 2006 When Berkshire Bought 80% In Cutting Gear Firm

May 2, 2013 Leave a comment

Buffett Pays $2.05 Billion for Remaining Stake in Iscar

Berkshire Hathaway Inc. (BRK/A) agreed to pay $2.05 billion for the 20 percent of IMC International Metalworking Cos. that it doesn’t already own as Chairman Warren Buffett expands his bet on the Israeli manufacturer.

IMC, known as Iscar, makes cutting gear for industries including aerospace and auto manufacturing. Jacob Harpaz will remain chief executive officer of Tefen, Israel-based IMC, the companies said today in a statement.

Buffett has structured deals to buy Marmon Holdings and IMC to allow the selling families to retain a stake in the companies they built. Omaha, Nebraska-based Berkshire can then increase its ownership with the price based on the results after the initial deal. He said in 2006 that he bought 80 percent of Iscar in a transaction that valued the company at $5 billion.

“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,” Buffett, 82, said in the statement.Iscar had 11,933 employees at the end of last year, compared with 6,518 six years earlier, according to Berkshire’s annual reports. The company has been bolstering operations in Asia, including at its Tungaloy unit in Japan. Iscar has also invested in TaeguTec Ltd., a cutting-tools maker based in South Korea.

Berkshire said in its most recent annual report that revenue declined last year as demand weakened outside the U.S. Still, Buffett counts Iscar among Berkshire’s “powerhouse five” non-insurance operations, including Marmon, the Burlington Northern Santa Fe railroad, Lubrizol and MidAmerican Energy. The group had aggregate earnings of $10.1 billion last year, up about $600 million from 2011.

‘Powerhouse Five’

“Unless the U.S. economy tanks — which we don’t expect — our powerhouse five should again deliver higher earnings in 2013,” Buffett wrote in a letter to shareholders in March. “The five outstanding CEOs who run them will see to that.”

Eitan Wertheimer, who sold the company to Berkshire in 2006, has described himself as Buffett’s “travel agent” and accompanied the billionaire on meetings with business owners in Asia, Germany, Italy, Switzerland and Spain as Berkshire hunts for acquisitions.

Berkshire “fully appreciates the unique nature of the global Israeli enterprise that we have created, and that is committed to remaining true to that heritage,” Wertheimer said.

Buffett who hosts Berkshire’s annual meeting May 4, has been searching for ways to deploy a cash hoard that stood at $47 billion at the end of 2012. He subsequently committed about $12 billion in February in a deal with Jorge Paulo Lemann’s 3G Capital to take HJ Heinz Co. private. That transaction was approved by shareholders of the ketchup maker yesterday.

Berkshire climbed 19 percent this year through yesterday in New York trading. The shares closed at a record $161,025 on April 25.

Wachtell, Lipton, Rosen & Katz provided legal advice to the Wertheimer family and IMC, according to the statement. Berkshire was advised by Munger, Tolles & Olson LLP.

To contact the reporters on this story: Zachary Tracer in New York at ztracer1@bloomberg.net; Noah Buhayar in New York at nbuhayar@bloomberg.net.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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