Israeli billionaire Nochi Dankner owns the country's biggest mobile-phone provider, supermarket chain and insurer. Now, as Dankner searches for ways to expand his IDB Group, he's looking abroad.
IDB Development Ltd. in June joined with Israeli investor Yitzhak Tshuva in plans to spend as much as $8 billion to build a hotel-casino in Las Vegas. Another IDB company, Clal Insurance Enterprises Ltd., spent $61 million for a stake in newly formed Titanium Asset Management Corp., based in Bradenton, Florida.
With just 7 million people, Israel is too small for a new generation of entrepreneurs whose holdings dominate local markets. Africa Israel Investments Ltd., Delek Group Ltd. and Israel Corp., which along with IDB are the country's biggest holding companies, have all made acquisitions abroad in the past two years.
``I believe very much in Israel and am a great believer in the Israeli economy,'' Dankner, 52, said at his office on the 44th floor of a tower overlooking Tel Aviv and the Mediterranean Sea. ``However, it is clear that our expansion must be overseas.''
Israeli companies have made $16.4 billion of acquisitions at home since a domestic stock market rally began five years ago, according to data compiled by Bloomberg. Opportunities for further growth are limited because the country's consumer market is saturated, said Adi Raveh, a professor of business administration at the Hebrew University of Jerusalem.
IDB's Super-Sol Ltd. controls 38 percent of the retail-food market, according to ACNeilsen Corp. Among other IDB companies, Cellcom Israel Ltd. has about 34 percent of the mobile-phone market, and Clal Insurance has a quarter of its market.
``They've exhausted all the possibilities,'' Raveh said. ``The pie can't get any bigger.''
Some foreigners still see opportunities in Israel. The country will probably attract $9.5 billion of foreign direct investment this year, the second-highest figure ever after $14.3 billion last year, according to a report by the Rishon Lezion College of Management.
Buyers are usually looking for companies that have developed new technologies and do business outside Israel, said Vered Dar, an economist for Tel Aviv-based Psagot Ofek Investment House Ltd.
``It's always been high tech and startups,'' Dar said.
Billionaire Warren Buffett last year paid $4 billion for Iscar Metalworking Cos., which sells metal-cutting tools in 52 countries. Omaha, Nebraska-based Berkshire Hathaway Inc., Buffett's investment company, in August said second-quarter profit from manufacturing, services and retailing grew 16 percent from a year earlier, led by Iscar.
Shares in Dankner's companies have lagged behind those of peers that began investing abroad earlier. While IDB Development Ltd. has risen 133 percent in the past three years, including the value of dividends paid, that was two percentage points less than the gain for the Tel Aviv Stock Exchange's benchmark TA-25 index.
Tshuva's Delek Group, the Netanya-based holding company that bought the La Gloria oil refinery in Texas in 2005 and took it public last year, has more than tripled in the past three years. Shares of Yehud-based Africa Israel, controlled by billionaire Lev Leviev, rose fourfold in the period as it invested in U.S., Russian and eastern European real estate, including properties such as the New York Times building.
Israel Corp., controlled by billionaire Yuli Ofer, increased close to six times in the period. In 2005, the Tel Aviv-based company's Israel Chemicals Ltd. unit bought Astaris LLC of St. Louis for $255 million. In May, Israel Corp. bought power stations in Latin America and the Caribbean for $568 million. This week, Israel Corp. said it would invest in a $200 million startup to develop a global network of stations for charging up electrically powered cars.
The search for overseas acquisitions is being fueled by an ``enormous amount'' of cash generated by Israeli operations after five years of economic growth, said Leonard Rosen, head of Lehman Brothers Holdings Inc.'s Israel office.
IDB Holdings, the umbrella company for Dankner's assets, generated 1.85 billion shekels ($430 million) in cash from operations last year and 1 billion shekels in the first half of 2007. That compares with 726 million for all of 2004.
``What we are seeing is the globalization of the Israeli economy,'' said Rosen, whose office advised on five of the six biggest overseas acquisitions by Israeli companies since 2000.
Dankner, the scion of an Israeli family that made its fortune in salt and real estate, began his career as a commercial lawyer. After he found himself dispensing business advice along with legal counsel, Dankner decided to do the deals himself.
In 1997, he brought together investors including Ted Arison, founder of Carnival Cruises, and New York-based Michael Steinhardt, who paid $1.4 billion to buy a controlling stake in Bank Hapoalim Ltd., Israel's largest lender, from the government. Five years later, Dankner led a group that took control of IDB.
Even as he looks abroad, Dankner says he now spends about half his time on philanthropy, particularly projects that benefit northern Israel, which was hit by 4,000 rockets during last year's war in Lebanon. During the war, Dankner scheduled board meetings in the north to show his support for the residents under siege.
Overseas acquisitions have helped balance the company's risk, said Shuky Abramovich, chief executive officer of Clal Finance Ltd., a unit of Clal Insurance. Tel Aviv-based Clal Finance invests 25 percent of its assets under management outside Israel.
``In order for Clal to continue to grow and to reach even higher profitability, the only way is to go outside the borders of Israel,'' he said. ( Bloomberg )