Elul Group News Analysis - August 2011
General News Summary
The Israeli Summer
First there was the Arab Spring, now it's the Israeli summer. A wave of protests swept the country in late July, centering on the high cost and low availability of housing. On July 30, an estimated 150,000 people took part in separate, but simultaneous demonstrations in cities all over Israel.
Prime Minister Netanyahu and Housing Minister Ariel Attias presented a plan which they contend would solve the crisis by removing bureaucratic obstacles to the building of new homes and rental apartments for students and young couples, which protesters, who set up tent camps in Israel's major cities, rejected as too late and too little. And the Histadrut trade union federation threatened to mobilize unions to reinforce the protests.
Criticism also came from within the establishment. Dr. Yaron Zalicha, a former economic adviser to Netanyahu and former accountant-general at the Finance Ministry, said the prime minister's plan “is a plan of headlines” with no chance of success.
Israeli taxes on homes are 75% above the OECD average, according to a position paper published by the Jerusalem Institute for Market Studies. The position paper, released just as there were widespread protests in major cities about the high cost and unavailability of housing, blames the government, and not the market, for the persistent problems. The Institute cites a World Bank study that ranks Israel in 121st place in the world for efficiency in obtaining building permits, and 147th place for efficiency in obtaining property rights after a real estate purchase. These procedures take four times longer in Israel compared with the OECD average.
In addition to the housing demonstrations, protests in Israel continued over the high cost of living vis-â-vis generally low salaries, and a four-month strike of all hospital doctors showed little sign of abating.
Rift with Finance Minister?
Prime Minister Benjamin Netanyahu has denied persistent reports of a rift with his finance minister, Yuval Steinitz. Members of the PM's Likud party reportedly favor replacing Steinitz, who came into office as a Netanyahu confidant, with another Likud front-bencher, Communications Minister Moshe Kahlon. Social unrest over government economic policies has pushed the ruling party's popularity ranking to new lows.
Controversial Laws
The Knesset passed one controversial law and rejected two others in July. On July 12, it passed a statute allowing settlements in the West Bank and settlement-based businesses to sue Israelis who promote boycotts of their products or institutions. The law, sponsored by MK Ze'ev Elkin of Prime Minister Netanyahu's ruling Likud party, was approved in a 47-38 vote; it comes in response to boycott of settlements by Israeli performers and academicians.
Later in the month, intense efforts by the prime minister succeeded in short-circuiting a proposal, by the senior right wing Yisrael Beitenu coalition partner, for a parliamentary investigation of foreign contributions to left-wing Israeli NGOs. And in late July, a 40-17 vote turned down a proposal from the other side of the political spectrum: a bill by left-wing Meretz MK Nitzan Horowitz to allow civil marriage in Israel. Marriage and other personal status matters today are under the jurisdiction of the various religious courts, be they Jewish, Christian or Muslim.
Bollywood Visit
A nine-member delegation from India's film industry visited Israel in early July, to attend the annual Jerusalem International Film Festival, explore possible joint ventures and scout filming locations. The delegation met top Israeli directors and producers, including Globus Group Studios chairman Yoram Globus and its CEO Israel Horowitz, New Israel Foundation for Cinema and TV Chair Renen Schorr, and officials of the Jerusalem Venture Partners investment firm.
Eilat Airport
Eilat, Israel's southern resort city on the Red Sea, will get a new airport. The cabinet in late July approved construction of a new international airport at Timna, north of the town. The NIS 1.6B (about $450M) facility will replace Eilat's current airport, near the center of the town, and will end civilian use of the runways at the nearby Uvda Air Force Base, where airliners too large for the current Eilat airstrip now land.
Flotilla Flop
Pro-Palestinian efforts to launch a new “humanitarian flotilla” to Gaza, to protest the Israeli naval blockade of the Gaza strip, ran aground in June and July. Activists suggested sabotage had caused mechanical mishaps that made some ships unseaworthy. On July 8, a fly-in of hundreds of Palestinian supporters to Ben-Gurion International Airport was also short-circuited. Israel provided foreign air carriers with a list of over 300 people who would not be allowed into the country. Slightly over 100 pro-Palestinian protesters, who did manage to get on flights to Israel, were detained on the airport tarmac and subsequently deported.
Meanwhile, a UN report on the May 2010 Mavi Marmara incident, in which nine people were killed when Israeli commandos intercepted a Gaza-bound flotilla, was delayed as Turkish Prime Minister Recip Tayyep Erdogan continued to insist that Israel apologize and pay compensation for the deaths, and Israeli Foreign Minister Avigdor Lieberman said there was no reason to do so.
The Economy
Unemployment Down
Israel's unemployment continued to fall in May 2011, reaching an all-time low of 5.7% of the civilian labor force. The previous low point was 5.9% in May-August 2008. Unemployment has declined steadily since the beginning of 2011, from 6.1% in January to 5.7% in May.
Optimistic Projection
The Israeli economy will grow by 5.3% in 2011, Britain's influential Economist has predicted. The rate is double that of the U.S. and triple the Euro bloc. The Economist's prediction is compiled in cooperation with Citibank, Deusche Bank, HSBC and Morgan Stanley.
Index Slows
The Bank of Israel's Composite State of the Economy Index rose by 0.2% in June 2011 and by 2.7% in the first half of the year.
CPI Rises
The Consumer Price Index rose by 0.4% in June. The increase, in line with market expectations, brought inflation for the 12 months ending in June to 4.2%, 1.2% above the government's price stability target.
Venture Leader
Israel ranked first in venture capital investments as a percentage of GDP, in a list compiled by the Organization for Economic Cooperation and Development –OECD.
The ranking, based on 2009 data, found that venture capital investments in Israel were equal to 0.18% of GDP, higher than developed economies such as the U.S., UK and Sweden. Israel's rank in investments in mature technology companies was much lower. Still, in a ranking of 37 countries for total investment (venture plus growth capital), Israel ranked second to Ireland.
On the negative side of the ledger, Israel was 29th of 37 in the bureaucratic burden facing start-ups.
16% Rise
Foreign investment in Israel rose by 16% in 2010, according to a just-released report by UNCTAD, the United Nations Conference on Trade and Development. During the same period, world foreign investment rose by 5% to $1.24 trillion, considerably lower than the annual average of 15% in the years preceding the 2008 world financial crisis, the UN agency said.
Crude Facts
Israel's consumption of petroleum as a source of energy has declined over the last decade from 279,000 barrels a day in 2000 to 242,000 last year. Increased use of natural gas and coal has lowered the country's reliance on crude as an energy source from nearly 100% in the 1980s to about 47% in 2010.
Money-Laundering Moves
The Israel Money Laundering and Terror Financing Prohibition Authority signed letters of intent with financial intelligence units of the U.S., India, and Albania to collaborate on money laundering. The letters provide for collaboration and the sharing of intelligence to improve enforcement capabilities. Similar letters have been signed with other international agencies, including those of Australia, Angola, Argentina, Belgium, Canada, Croatia, Cyprus, Denmark, Finland, Georgia, Luxembourg, Romania, Russia, and South Africa.
More Good Gas News
An additional stratum in the offshore Tamar gas field contains an estimated 0.5-1.5 trillion cubic feet of natural gas, Delek Drilling has disclosed. The Mary B field in Yam (sea) Tethys that has been supplying 75% of Israel's natural gas consumption since 2004 is only 500 billion cubic feet. Delek Drilling said that its discovery may have implications for the Leviathan field, whose area is triple that of Tamar, as well as the Myra and Sara offshore fields.
Aid Cut, but not for Israel
The U.S. Foreign Affairs Committee of the House of Representatives cut $6.4B off the State Department's 2012 foreign aid budget request. Military aid to Israel, an annual $3B, was left unchanged.
Mergers & Acquisitions
S1-Fundtech
S1 Corp., a financial services provider with world headquarters in Norcross, Georgia, is purchasing Israel's Fundtech Ltd. in a stock deal valued at about $700M. The companies said that the acquisition will enable S1, which has a strong presence in Latin America and Africa, to use Fundtech's resources for expansion into India and Western Europe.
Radiancy-Photomedex
Radiancy, an Israeli aesthetic medicine company based in Yavne, east of Tel Aviv and Orangeburg, New York, is merging with Photomedex of the U.S. Radiancy will hold 75% of the equity in the merged company, giving the Israeli firm a valuation of about $170M. Radiancy's product line includes a home hair removal device, a device for treating acne, and a home device for rejuvenating the skin.
Permira-Netafim
Permira, a private European investment fund, is purchasing 62% of Israeli drip-irrigation pioneer Netafim at a company valuation of $850M, or $1B including the assumption of debt. The sellers are Kibbutz Magal (24%), Kibbut Yiftah (8%), and the Markstone and Tene investment firms (20% and 10%, respectively). The remaining 38% remains in the hands of Kibbutz Hatzerim, one of the three kibbutzim that founded Netafim and developed it as a worldwide leader in the drip irrigation field.
Citi-Ness
The venture capital arm of Citigroup has purchased Ness Technologies, a Tel Aviv-based global provider of information technology solutions. Citi Venture Capital International – CVCI. CVCI, a global private equity investment fund, will acquire Ness in an all-cash transaction valued at approximately $307M. Ranked as one of the world's top 10 IT (information technology) outsourcing vendors, Ness operates in three sectors: software product engineering, system integration, application development and consulting, and software distribution.
VMware-Digital Fuel
Cloud computing infrastructure giant VMware is acquiring Israel's Digital Fuel Technologies, a vendor of IT financial management software, for $100M. Digital Fuel provides enterprises with tools to measure the cost of their infrastructure and applications across a combination of public clouds, private clouds, or traditional environments. Business units can then be charged for their actual usage of IT applications and resources.
GE Lighting-Lightech
GE Lighting has acquired Lightech Ltd., a maker of energy-supply management components for lighting units, for an estimated $10-$15M. The family firm, based in Lod, develops transformers for use in LED and halogen lighting, and manufactures them in China.
DG Fastchannel-MediaMind
DG Fastchannel, the Texas-based advertising distribution firm, has acquired MediaMind Technologies of Herzliya, north of Tel Aviv, for $517M. The largest shareholder in MediaMind, which provides digital advertising solutions and raised $57M on Wall Street last year, is the Sycamore Fund owned by Eli Barkat, brother of Jerusalem Mayor Nir Barkat, which has a 20% stake in MediaMind and will receive $82M. Insight Ventures holds a 16.5% stake and will receive $68M. Former Koor CEO Jonathan Kolber holds a 5.7% stake and will receive $24M.
Sovcom Sale
Kardan Investments NV has sold its 50% share in Russia's SovCom Bank to its former partner in the bank for €123M. Kardan is controlled by Israeli businessmen Yosef Grunfeld and Avner Schnur.
Playtech-Mobenga
Playtech Cyprus, controlled by Israeli Teddy Sagi, has acquired Swedish mobile sports betting company Mobenga AB for up to €23.8M, and expanded its contract with British online games operator Gala Coral. Playtech will pay €8M for Mobenga, which enables sports bets on smartphones and tablet computers, and up to an additional €15.8M based on a multiple of Mobenga's 2013 pretax profit.
Gala Coral, which operates in the U.K. and Italy, will be supplied with Playtech's technology platform for its operations.
Verint-Vovici
Enterprise feedback management (EFM) solutions developer Vovici of the U.S. has been acquired by Verint for $76.4M. Vovici's survey and response analysis solution enables companies to know what their customers think about them.
It was the second recent acquisition for Verint, a subsidiary of Israel's Comverse, which like Comverse has about half of its worldwide employees in Israel. Three months ago, it purchased Israel's Rontal Applications, whose technology processes data from command-and-control and incident-management systems to create a 3D image.
Matomy-Adperio
The Tel Aviv-based Matomy Media Group has acquired Adperio Inc. of Denver, Colorado, for $30M. Earlier this year, Matomy acquired a Mexican digital advertising company. Adperio, which operates on social networks, managing Facebook credits for companies and brands, was founded as Memolink in 1994.
Finance & Investment
Grant for Intel
Finance Minister Yuval Steinitz and Trade, Industry and Labor Minister Shalom Simhon have decided to back a NIS 1B (about $300M) grant to Intel, the computer chipmaker, for the expansion of its existing plant in the southern city of Kiryat Gat and construction of a new plant in northern Israel. The conditions include a pledge by Intel hire 1,500 additional workers in Kiryat Gat and 500-1,000 in the new factory, possibly in Beit She'an on the Jordan River. Intel will also be eligible under an new law granting preferential tax breaks to new factories, amounting to 5% rather than to the current 12%.
Fundraising Up
Israeli venture capital-backed companies raised $364M in the second quarter of 2011, 6% more than the first quarter of 2011 and 77% more than the corresponding quarter in 2010, according to the latest PwC Money Tree report. PriceWaterhouseCoopers said that the average investment raised by 76 Israeli companies rose to $4.8M in the second quarter, up from $3.4M in the corresponding quarter and $4.1M in the preceding quarter. The largest amount of capital – $109M – was invested in Internet start-ups, the largest quarterly investment in this sector in a decade.
Deal Completed
EPN EDT Holdings II LLC, an Australian subsidiary of Elbit Imaging, has completed the purchase of EDT Retail Trust, which began in March, for $242M. EPN now owns 96.4% of EDT, which owns 48 community shopping centers in the U.S., and will make an offer for the remaining shares and delist the company from the Australian Stock Exchange.
India Plant
Agrochemicals market leader Makhteshim Agan has opened a new formulation and packaging plant in Dahej, western India, which the Israeli company says is the center of the Indian chemicals industry. The facility will serve Makhteshim's markets in India and other Asian and African markets. Construction of the plant, by a joint Israeli-Indian team, began in October 2010.
Science & Technology
Internet Giant?
Conduit, a developer of platforms for Internet browser toolbars and applications, anticipates revenues of about $500M and profit of $200M in 2011, according to a report in the Marker. Conduit's toolbars are designed to battle the "attention deficit" of web surfers who are prone to leave a favorite web publisher's page. The technology of the company, which is based in Ness Ziona, south of Tel Aviv, is based on technology developed at the nearby Weizmann Institute of Science.
In early July, Conduit and Commtouch, an Israeli Internet security specialist, agreed to incorporate Commtouch technology into Conduit toolbars.
Aerospace & Defense
Barahav to Head IAI
Dov Barahav, former head of Amdocs Israel, has been named to replace Yair Shamir as chairman & CEO of government-owned Israel Aerospace Industries – IAI. The appointment took effect in late July.
Italian Job
Elbit Systems, Israel's largest private defense contractor, has won a $15M contract to provide anti-aircraft countermeasures for the Italian Air Force. The systems, supplied to Italian lead contractor Electronica SpA, will be installed in C130j and C27j cargo planes, AW101 cargo helicopters and other Italian aircraft.
Airbus Collaboration
IAI and Europe's Airbus Military will collaborate on a joint development of small and versatile Airborne Early Warning & Control Systems (AEW&C). The systems, which are expected to bring in hundreds of millions of dollars in revenue, are to be mounted on the Airbus C290 tactical transport platform modified to take off and land on short runways.
Merkava Panel
Defense Minister Ehud Barak and Udi Shani, the Defense Ministry's director-general, have named former Ground Forces Command commander Maj. Gen. (Res.) Emanuel Sakal, to head a special panel mandated to determine a strategy for developing and marketing future generations of Israel's Merkava battle tank. Other members of the committee include Gilead Sher, former chief of staff in the Prime Minister's Office when Barak held that post a decade ago.
Ethiopian UAVs
BlueBird Aero Systems, a small Israeli defense contractor based in Kadima, in the Sharon region north of Tel Aviv, will supply upgraded Boomerang and SpyLite unmanned aerial vehicles to Ethiopia. Boomerang, which is powered by fuel cells, can be carried by a single soldier, is launched by a catapult and has the capacity of staying aloft for up to 10 hours.
Defense Expenditure
Israel's expenditure on defense declined from 9.1% of Gross Domestic Product in 2002 to 6.3% of GDP in 2009, according to an analysis of defense spending from 1950 to 2009 published by the Central Bureau of Statistics. The figures, it must be added, do not represent a decline in absolute numbers, since Israel's GDP has grown substantially over the same period. Defense costs in 2009 amounted to NIS 59B (about $16B).
Eurofighter Missile
Israel's Rafael Advanced Defense Systems and Diehl, Germany are jointly developing PILUM, a smart air-to-ground missile. The missile, for use with the twin-engine Eurofighter, is based on Rafael's Spice missile, which has a stand-off range of 100 km.
Test Passed
Iron Fist, a hard-kill active protection system for military vehicles designed by Israel Military Industries – IMI, has passed a series of tests in the U.S. for use against RPG missiles, tank-fired munitions and anti-tank guided missiles, Iron Fist uses radar sensors developed by Israel's Rada Electronic Industries to locate threats, which are intercepted and destroyed by an explosive projectile.
New (UAV) Recruit
Elbit Systems' Hermes 900, an unmanned aerial vehicle specially designed for intelligence gathering over hostile territory, is due to enter IDF operational service in the near future, the Mako website said in early June. The Hermes 900, next generation of Elbit's Hermes 450, is capable of staying aloft for 30 hours at altitudes of up to 30,000 feet. Introduced at the Paris air salon in 2007, the UAV has a wingspan of 15 meters and weighs 970 kg.
Schwimmer Dies
Al Schwimmer, the founder of IAI, died in a hospital near Tel Aviv on June 11 at the age of 94. In 1947, U.S.-born Schwimmer, a former U.S. Air Force pilot, helped the pre-state Hagana underground acquire aircraft. In addition to being one of the first to enlist in the IAF and later founding what is today IAI, Schwimmer served as technology adviser to two Israeli prime ministers, and was awarded the Israel Prize in 2006 for his contributions to Israeli society.
Defense Exports $7.2B
Israeli defense exports reached $7.2B in 2010, up about 3% from 2009's $6.9B, the Defense Ministry announced. An additional $2.4B worth of military hardware was sold to the Israel Defense Forces and local security establishment. The country's four largest defense contractors – government owned IAI, Rafael and IMI, plus the private Elbit Systems – accounted for 84 percent of total sales, while cumulative orders placed with the four rose 9% to a record $18.8B.
Boeing Deal
Elbit Systems' subsidiary M7 Aerospace of San Antonio, Texas, a long time supplier of machine parts and other equipment to Boeing, has won a three-year deal to supply the U.S. firm with inboard flap assemblies for the KC-135 Stratotanker. Size of the deal is immaterial, Elbit said. The four-engine KC-135 is the principal tanker of the U.S. Air Force. Inboard flaps, located on trailing edge of an aircraft's wing, increase lift, allowing the aircraft to fly at a lower airspeed for takeoff and landing.
Iron Dome Interest
The U.S. and two unnamed Asian countries are interested in acquiring Israel's Iron Dome defense system against short-range missiles, according to a report in Globes. The paper said that Americans became interested only after Iron Dome's operational success in interception of Grad rockets fired by Hamas on Ashkelon. According to an Israeli source, the Americans "now realize that there has been a technological achievement that provides a response to a huge problem of theirs."
Merger Plan Criticized
The attempt to merge Rafael and IMI, both government-owned companies, "is a mistake. Rafael isn't ready to merge with IMI; it's taken on too big a nut – and is choking" David Arzi, chairman of ImageSate International, has told Globes. Arzi, whose firm is jointly owned by the government's IAI and private defense contractor Elbit Systems, said that a merger of IMI with IAI was preferable.
Meanwhile, the Finance Ministry has reportedly persuaded the Defense Ministry to lay off 500 IMI employees, as the company's financial crisis continues.
Lighter Tanks in the Future?
Israeli defense authorities have set up a team to review the possibility of replacing Israel's Merkava battle tanks, considered the most advanced in the world, with lighter armored vehicles, in the future. The team, which includes representatives of the IDF Ground Forces Command, the Armored Corps and the Merkava Program Office of the Defense Minister, was inspired by the success of the recently deployed Trophy, the Israeli-made active protection system for armored vehicles, in intercepting anti-tank weapons on the Gaza Strip border. As a result of improved protection, it is possible that tanks may no longer require heavy armor, which adds to production costs and fuel consumption.
Patrols Expanded
Guardium, the unmanned ground vehicle developed by G-NIUS Ground Systems, may be deployed along additional sectors of the Gaza Strip security fence, according to a report in the Jerusalem Post. G-NIUS is a jointly-owned subsidiary of IAI and Elbit Systems. The vehicle has so far been deployed along only one sector of the frontier.
Afghan Eyes
The U.S. Army has taken delivery of its first three Skystar-180 systems for reconnaissance use in the protection of American troops in southern Afghanistan, the Jerusalem Post reported. Using a balloon as its platform, the Skystar can provide 360-degree 24-hour surveillance from an altitude of 1,000 feet. Skystar systems, already deployed by the Canadian military, the Israel Defense Forces and the Israel Police, are produced by RT LTA Systems Ltd. of Yavne, south of Tel Aviv.
Howitzers on the Way Out
Israel will decide the future of its current fleet of M109 155-mm. self-propelled howitzers, a mainstay of the Artillery Corps since their acquisition in the 1970s. Candidates to replace the veteran weapons are the Artillery Gun Module, developed by Germany's KMW-Kraus-Maffei-Wegman, together with a U.S. prime contractor; autonomous truck mounted howitzers made by Israel's Soltam Systems; and BAE. The replacement systems, all truck-mounted, have greater range, higher accuracy and increased mobility.
Better Analysis Sought
The IDF has asked three top defense contractors for help in developing a way to automate the processing and analysis of footage and data from the country's intelligence-gathering satellites. Currently, the army uses trained soldiers to read and interpret information from the high-resolution cameras of its Ofek 5, Ofek 7 and Ofek 9 satellites, and data from the radar of the advanced TecSar satellite. An automatic system could speed up the processing and analysis of large quantities of data.
Digital Army
Elbit Systems has won a $40M Ministry of Defense follow-on order (to a $300M initial deal) for IDF's Digital Army Program – DAP or Hunter. It enables force coordination at all levels, access to updated situational pictures, improved overall operational capabilities, including survivability and accuracy, and more efficient utilization of personnel and other resources.
Controp Sold to its Customers
Rafael and Aeronautics Ltd. of Yavne, south of Tel Aviv, have acquired Controp Precision Technologies for a value of NIS 300-350M ($85-$100M). Controp develops and produces surveillance systems including thermal imaging cameras and electro optical infrared payloads for security and defense. Aeronautics bought 18% of Controp in 2004 and is acquiring an additional 32%. Rafael is acquiring 50%. The two companies will own Controp in equal shares.
ESA Contract
Orbit Technologies, based in Netanya, north of Tel Aviv, has been awarded a contract worth several million dollars from the European Space Agency – ESA. ESA, which is responsible for space programs of the 21 EU member states, made the deal to enhance low-earth orbit imaging and surveillance satellites.
New IMI Chairperson
Attorney Niza Posner, an expert in commercial, banking and bankruptcy law, has been named chairperson on government-owned IMI. Posner succeeds Avner Raz, who left to preside over Elul Tamarynd Ltd.
French to Buy Heron
France will purchase Heron TP long-range UAVs made by IAI, the Defense Ministry in Paris has announced. The Heron TP will replace the smaller Heron 1, in French service for several years. A joint bid by IAI and France's Dassault was chosen over an offer of Predator B UAVs from General Atomics of the U.S. The first export deal for the Heron TP, the French contract is worth nearly $500M and could open the door to UAV sales to additional countries, such as Germany.
The Heron TP, the largest UAV in IAF service, has a 26-meter wingspan (same as a Boeing 737), can stay airborne for up to 45 hours and a payload capacity of up to a ton. It can be used as a platform for launching missiles, and some Israeli sources refer to it as the UAV “that can reach Iran.”
