Oct. 08, 2009 | Filed Under: BRK-A , BRK-B
(GuruFocus, October 8, 2009) In 2006, Warren Buffett bought his first foreign operating business, an Israeli company called Iscar Metalworking. The process he did the acquisition is classical, making you wonder whether even in business world certain people are meant to be together, just like in a marriage. Buffett recounted how the deal was made in his 2006 Chairman’s Letter to Shareholders:
Related LinksThe highlight of the year, however, was our July 5th acquisition of most of ISCAR, an Israeli company, and our new association with its chairman, Eitan Wertheimer, and CEO, Jacob Harpaz. The story here began on October 25, 2005, when I received a 1¼-page letter from Eitan, of whom I then knew nothing. The letter began, “I am writing to introduce you to ISCAR,” and proceeded to describe a cutting tool business carried on in 61 countries. Then Eitan wrote, “We have for some time considered the issues of generational transfer and ownership that are typical for large family enterprises, and have given much thought to ISCAR’s future. Our conclusion is that Berkshire Hathaway would be the ideal home for ISCAR. We believe that ISCAR would continue to thrive as a part of your portfolio of businesses.”Overall, Eitan’s letter made the quality of the company and the character of its management leap off the page. It also made me want to learn more, and in November, Eitan, Jacob and ISCAR’s CFO, Danny Goldman, came to Omaha. A few hours with them convinced me that if we were to make a deal, we would be teaming up with extraordinarily talented managers who could be trusted to run the business after a sale with all of the energy and dedication that they had exhibited previously. However, having never bought a business based outside of the U.S. (though I had bought a number of foreign stocks), I needed to get educated on some tax and jurisdictional matters. With that task completed, Berkshire purchased 80% of ISCAR for $4 billion. The remaining 20% stays in the hands of the Wertheimer family, making it our valued partner.ISCAR’s products are small, consumable cutting tools that are used in conjunction with large and expensive machine tools. It’s a business without magic except for that imparted by the people who run it. But Eitan, Jacob and their associates are true managerial magicians who constantly develop tools that make their customers’ machines more productive. The result: ISCAR makes money because it enables its customers to make more money. There is no better recipe for continued success.In September, Charlie and I, along with five Berkshire associates, visited ISCAR in Israel. We – and I mean every one of us – have never been more impressed with any operation. At ISCAR, as throughout Israel, brains and energy are ubiquitous. Berkshire shareholders are lucky to have joined with Eitan, Jacob, Danny and their talented associates.
Now three years have passed, how have the relationship worked out? How is the cutting tool maker weathering the impact of the global credit and financial crisis? Watch the following recent interview of Eitan Wertheimer, Chairman of Iscar:
I am mostly intrigued by Eitan Wertheimer's attitude towards cost cutting. Through the downturn, he kept cash flow very high by cutting everything that could be cut except people. They went down to 4-day workweek and recently brought it back to 5-day workweek. How about the idea of cutting headcount? “Never in my dreams!” he said.
Speak of the quality of people.
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2 comments:
It's nice to watch Eitan and his views. We do not understand, when all his Competitors like Sandvik, Kennametal, Widia, Mitsubishi & others are operating directly in India and increasing their investments for better market share. Why Iscar management is still sleeping & just operating thro' agency in India?
Dear Eitan,
When are you planning to invest in India?
How would you make up losses you have made so far by ignoring Indian market?
When all your competitors are very dynamic in India, why are you relying just on your agency who has not made any investment & has not good name in India for this business operations?
Regards,
SRK
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