Strangers in our midst

When Jonathan Kolber sat down four years ago in the CEO's chair at Koor Industries (NYSE: KOR), he had no doubt which way the winds blew. The period of rapid economic growth that had benefited Koor was over, he explained, and in order to sustain rapid growth, Koor had to become a multi0-national: within five years 80% of the concern's activity would be export or international activity.

Kolber also had no doubt that the road to Koor's multi-national status lead through strategic foreign partners; America's biggest investment banks like Morgan Stanley and Merrill Lynch were hired to seek those strategic partners. The world is a big place and with the shareholders' know-how and connections, the possibilities seemed limitless.

And, in fact, in the past three years, nary a quarter has gone by without reports of foreign giants' impending investments in Koor holdings: Du Pont seemed like a potential investor in Makhteshim Agan Industries (TASE: MAIN ), Nortel in ECI Telecom (Nasdaq: ECIL), and the foreign aircraft giants seemed like investors in Elisra.

With Koor's announcement yesterday of negotiations to sell 24-30% of its Elisra stake, the concern has completed the move. In each major holding a new investor has entered: 5% of Makhteshim were sold, 12% of ECI and there are advanced negotiations about Elisra.

But, oh dear oh my, look at what strategic investors Koor was forced to settle for:

Makhteshim Agan: Koor examined the entry of some of the world's leaders in chemicals as strategic investors. Names like Du Pont, Novartis, and Monsanto rolled off the tongue and were printed in the newspapers, because they seemed like naturals.

But in the end, how disappointing, the only investors who entered Makhteshim last year were provident and mutual funds, most from downtown Tel Aviv, who bought 5% in an off-floor deal chiefly interesting for its discount from the market price.

ECI investor from Herzlia

ECI: Every name in the telecom world was mentioned in the past few years as a possible ECI stakeholder or maybe an investor in one of ECI's divisions. The only name confirmed was Nortel which conducted preliminary negotiations to acquire optics unit Lightscape. ECI with all its divisions looked like a classic candidate to win the investment of an international giant, as the company dealt in all the "hot" topics of the Internet heyday.

But in the end, how disappointing, the strategic investor who entered ECI came from Tel Aviv suburb Herzlia. Not Nortel and no, not Cisco nor Alcatel, but the Dovrat and Ofer families became partners in ECI despite not having any activity in ECI's field. The concern had a hard time calling them "strategic".

Elisra: For six months the press has reported advanced talks for a strategic investor's entry into Elisra. Koor executives hinted in conversations with analysts that at least two major foreign firms were interested in the Israeli defense contractor. Reports of negotiations with an Israeli company ¿ Elbit Systems (Nasdaq: ESLT) ¿ were vehemently denied by Elisra, Elbit, and Koor. "There is nothing concrete."

But in the end, how disappointing, it again became evident that vehement denials carry little weight. Yesterday Koor itself announced negotiations to sell 24% to 30% of Elisra to Elbit Systems.

Too bad Koor's failure to find foreign strategic investors for its companies doesn't stem only from the concern's internal problems, from the arrogant manner in which it sometimes conducted contacts with potential partners and from failure to read the map of the business sector and the direction of the capital markets.

Foreign investors lose appetite for doing business in Israel

No, this is not some Koor-centric phenomenon, but widespread in the entire Israeli economy. It didn't start a month ago with the intensifying wave of terror attacks or six months ago with events of September 11. This is a process that began in September 2000 and has gained momentum daily: big foreign investors are losing their appetite for doing business in Israel.

Makhteshim, Elisra, and ECI are companies whose sales are mostly exports, companies with big international marketing operations, presence in foreign markets where their names sometimes engender respect.

However, what looked natural two, three and five years ago, what had become an integral part of any Israeli company's business menu ¿ is progressively disappearing. Looking for a strategic investor? Save the airline tickets to New York, London or Munich. If there is another company in Israel in your field or in a complementary field ¿ you will have to make do with it. Looking for cash? Skip the visits to the major investment banks, despite the fact that most have branches in Israel. Shlomo Nehama and Galia Maor are your address.

Many have not yet internalized this process: Many companies and businesspeople still cling to the days there was always an alternative and a foreign investor could be found ¿ strategic or financial in nature. The giants already invested here didn¿t rush to the exits, but the chance of seeing major foreign players coming to Israel to exploit the slowdown to invest, gets slimmer every day.