Koor Industries Ltd. - Company Profile, Information, Business Description, History, Background Information on Koor Industries Ltd.

Four Kaufman Street
Tel Aviv 68012

Company Perspectives:

Koor Industries is the partner of choice for international blue chip corporations seeking joint ventures in Israel and the Middle East. In 1997, Northern Telecom, IBM, Carrier, Newbridge Networks, ITT Sheraton, and American Express joined a list of leading multinational corporations which already included Volvo, General Dynamics, Alcatel and others. Cooperation with these global enterprises is a two-way street. They gain access to Israeli high-tech know-how and development, Israeli and Middle Eastern markets and, in turn, are able to reach access to both US and European markets freely. Through its affiliates, Koor benefits from access to new international marketing networks, important research projects, new technologies, and state-of-the-art production methods.

History of Koor Industries Ltd.

Koor Industries Ltd. is the largest industrial holding company in Israel, accounting for seven percent of that nation's industrial output and exports. About half of the company's revenues are derived from telecommunications and electronics operations, principally through holdings in Tadiran Telecommunications Ltd. and Telrad Telecommunications Ltd., which together are the exclusive providers of digital public telephone switching apparatus to Bezeq, Israel's national phone company. Accounting for about 16 percent of sales each are Koor's two other main sectors: agrochemicals, and building and infrastructure. The former includes holdings in Makhteshim Chemical Works Ltd. and Agan Chemical Manufacturers Ltd., while the latter includes holdings in Nesher Israel Cement Enterprises Ltd. (Israel's cement monopoly), United Steel Mills Ltd., and Middle East Tube Co. Publicly traded, Koor is nonetheless controlled by two large shareholders: The Claridge Group, the investment management company of Charles R. Bronfman (co-chairman of Seagram Company) and his family, which holds almost one-quarter of Koor stock; and Bank Hapoalim, Israel's largest banking and financial services group, which holds nearly 23 percent.

The Early Years: Labor Union Roots

Koor's predecessor was Solel Boneh Construction, founded in British Palestine in 1924 by the Histadrut (the General Federation of Labor) to construct roads and buildings. Through Solel Boneh, the Histadrut provided a livelihood for settlers in an attempt to found a Jewish state in Palestine.

Solel Boneh began planning for independence as early as 1944, when it created an industrial arm called Koor Industries. Koor employed 500 workers at its two plants, Phoenicia Glass and Vulcan Foundries, both in Haifa. Many of Koor's early employees were immigrants who had escaped Europe. After World War II Koor employed many concentration camp survivors and refugees from Arab nations, providing much-needed job training and employment for these immigrants not just in cities but also in remote villages.

Koor formed Nesher Cement in 1945 as a joint venture with private investors. Koor's first exports, Vulcan car batteries, were sold to Syria in 1947. In 1951 Koor entered the telecommunications field through another joint venture called Telrad, which was located in the town of Lod, near Tel Aviv. From this facility and another built at Ma'alot in 1965, Telrad manufactured telephones, PABX switching terminals, and a variety of other electronic devices.

Shortly after Israeli independence was declared in 1948, the state was attacked by Arab nations. In repelling the attack, Israel took additional land and doubled in size. The war, however, left Koor economically isolated within the Middle Eastern region. Without local export markets, the company instead concentrated its sales efforts in Europe, North America, and Africa. But with continuing tensions between Israel and its Arab neighbors came the need for Israel to develop a domestic arms industry. In 1952 Koor, in conjunction with the Finnish company Tampella, established the Soltam artillery manufacturing plant. Koor's arms manufacturing grew over the years as Israel's Arab neighbors acquired increasingly sophisticated weaponry.

Koor opened the Harsah Ceramics plant in Haifa in 1953, and the following year built a steel processing complex in partnership with German interests. In conjunction with American interests, Koor established the Alliance Tire and Rubber Company in 1955. Through these ventures, Koor not only contributed significantly to Israeli import-substitution efforts, but generated valuable foreign exchange, too.

Koor Gains Independence in 1958

By 1958 Koor had grown to 25 plants with 6,000 employees and overshadowed its parent company, Solel Boneh. That year Hevrat Ha'Ovdim, the economic arm of the Histadrut, decided to make Koor a separate entity specializing in industrial products, management and financial services, and foreign trade.

In 1962 Koor created an electronics company called Tadiran, jointly owned by Koor and the Israeli Defense Ministry until 1969. A year after creating Tadiran Koor entered the chemical industry by purchasing Makhteshim. Israel's largest manufacturer of herbicides, pesticides, and insecticides, Makhteshim became an important exporter and source of foreign exchange.

Because it was so closely tied to the Histadrut labor organization, Koor often made business decisions according to workers' welfare rather than profit potential. One of the company's innovations in industrial relations was a joint labor-management committee to discuss production problems. This committee, introduced in 1964 at the Phoenicia Glass plant, raised productivity and minimized labor disputes and was copied later at other plants.

Israeli borders were expanded again in 1967 after another war with its Arab neighbors. The West Bank, formerly a part of Jordan, the Syrian Golan Heights, and Egypt's vast Sinai Peninsula came under Israeli control. Israeli economic influence spread into these occupied territories with the establishment of communal settlements. The development of these largely agrarian frontier regions represented an expansion of the domestic economy and increased demand for many of Koor's industrial and commercial products.

The Israeli Defense Ministry sold its 50 percent interest in Tadiran to America's General Telephone and Electronics Corporation (GTE) in 1969. The new ownership gave Koor access to superior technologies developed by GTE and helped Tadiran to become Israel's largest electronics manufacturer and one of its largest employers. In 1970 Koor purchased Hamashbir Lata'asiya, an integrated food manufacturer that produced edible oils and processed, canned, and frozen foods under the Telma brand name. In consumer goods, the company began manufacturing footwear and later added cosmetics, toiletries, cleaning products, and paper goods.

Foreign Expansion in the 1970s

In 1971 Koor took over the government-owned Elda Trading company and renamed it Koortrade. This new subsidiary promoted Koor products in export markets and represented other manufacturers who could not afford to establish their own trade promotion groups.

Koor also built its international reputation through turnkey projects in developing countries. The first of these was a cotton farm established in Ethiopia in 1972. Additional Koor projects in Nigeria, Togo, and other African nations improved Israeli relations in Africa and elsewhere in the Third World--especially important in light of continued Arab hostility toward Israel.

In 1973, when Israel was attacked by its Arab neighbors, it severely damaged its enemies' air forces in defending itself. Koor now was a more important strategic resource than ever before. The company was called upon to develop new weapons, help increase armament stockpiles, and raise military preparedness. In 1974, as part of an effort to promote more even geographical industrialization, Koor established the Agan Chemical plant in the Negev Desert in southern Israel.

Through peace and war, the company remained highly supportive of its workers, establishing a profit-sharing plan in 1973 and a worker-discount center in 1978. Recognizing the importance of skilled managers, the company also opened a management training school in 1981.

Koor's Telrad subsidiary was awarded the Industrial Development Prize in 1983 for a multiline telephone system it had developed. The award generated greater interest in the system and bolstered both domestic and international sales for the company. Telrad devoted a disproportionately high percentage of earnings to research and development, which led to more sophisticated battle management systems and communication devices as well as "smarter" weapons. In another defense-related project that year, Koor formed a partnership with Pratt & Whitney to build jet engine parts at Carmel Forge in northern Israel.

Despite a lasting peace agreement with Egypt in 1979, Israel endured numerous financial crises that often resulted in a high inflation rate. This in turn compromised the ability of Israeli exporters to remain competitive in world markets. Indeed, because it was in large part an instrument of Israeli labor, Koor devoted much of its excess capital to job creation, leaving it few resources to draw upon in times of economic hardship. Worse yet, a 1986 attempt to attract capital in American markets failed, resulting in losses of $253 million during 1987.

Difficulties in the Late 1980s

A new management team, headed by Benjamin Gaon, took over in May 1988 when Gaon's predecessor resigned in protest over interference from the Histadrut. Gaon's first task was to reorganize the company. Several factories were closed and others were combined. Koor's operations were reorganized into five groups, plus one division for international trade. Each group became an individual profit center, placing the burden of performance on individual group heads, while deep cuts were made in management staff.

But like the economy of which Koor was so much a part, the company's difficulties could not be sorted out overnight. Saddled with a $1.2 billion debt, a third of which was owed to foreign banks, Koor neared bankruptcy in late 1988. In fact, Bankers Trust Co. of the United States tried to force the company into liquidation when it failed to make a $20 million payment on a $175 million loan. After a Tel Aviv court granted the company a temporary stay, Gaon moved quickly to save the company.

Reborn in the 1990s

Gaon responded with an American-style restructuring, slashing the company's work force by 40 percent, from more than 32,000 to 20,000, undeterred by fierce protests from Israeli workers. He also jettisoned numerous noncore subsidiaries, reducing the number of holdings from 100 to less than 30. Three key sectors were retained as the core of the new Koor: telecommunications and electronics, agrochemicals, and building and infrastructure. In 1991 the company's $1.1 billion in debt was restructured. A return to profitability in 1992 signaled the culmination of the turnaround, which also was aided by an influx of Russian immigrants into Israel, who provided a sharp boost to the economy resulting in increased demand for numerous Koor goods and services.

Underlying the restructuring was a fundamental shift in company philosophy away from the pro-labor stance of the past toward a focus on profitability and competitiveness. But perhaps more important, Koor's financial ties to the Histadrut were considerably weakened by the debt restructuring agreement, in which lenders traded debt for equity stakes in Koor. An outgrowth of this deal was that Israeli banks gained significant stakes in Koor--Bank Hapoalim held almost 23 percent by the mid-1990s and Bank Leumi Le-Israel held barely more than six percent. The Histadrut saw its stake decline to only 22.5 percent by 1993. This was reduced to zero in 1995 when Shamrock Holdings, a private investment vehicle of Roy Disney (vice-chairman of Walt Disney) and his family, bought the labor federation's stake. Later in 1995 Koor held a successful international public offering in New York, raising about $120 million in American depository receipts.

By 1997 Shamrock was pushing for a breakup of Koor to enhance shareholder value. Both Gaon and Bank Hapoalim objected to such a move, resulting in Shamrock selling its Koor stake to The Claridge Group, the investment management company of Seagram Company co-chairman Charles R. Bronfman and his family, in mid-1997. Bronfman became chairman of Koor, with Jonathan Kolber, a Claridge Group executive, becoming deputy chairman. In July 1998 Gaon retired as president and CEO and was succeeded by Kolber. With Gaon having successfully established Koor as the largest and most profitable industrial concern in Israel, the stage had been set for the new management team to build upon this solid framework.

Principal Subsidiaries: Tadiran Ltd. (63%); Tadiran Telecommunications Ltd. (50.4%); Telrad Telecommunications Ltd. (80%); ECI Telecom Ltd. (10.7%); Makhteshim Chemical Works Ltd. (68%); Agan Chemical Manufacturers Ltd. (35%); Mashav (50%); Nesher Israel Cement Enterprises Ltd. (50%); United Steel Mills Ltd. (71%); Middle East Tube Co. Ltd. (76%).

Additional Details

Further Reference

"Blimey: Koor," Economist, April 3, 1993, pp. 66."Claridge Israel Buys Shamrock's Shares in Koor Industries," Israel Business Today, July 31, 1997, p. 1.Dempsey, Judy, "Koor Appoints Kolber as New Chief Executive," Financial Times, March 13, 1998, p. 27.------, "Koor Net Hit by Telecoms Revamp," Financial Times, March 31, 1998, p. 33.------, "Shamrock To Push for Spin-Offs at Koor," Financial Times, July 5, 1997, p. 17."Gold Fleeced? Israeli Business," Economist, July 26, 1997, p. 56."Kato to Buy 'Substantial Holdings' in Koor," Israel Business Today, January 31, 1997, p. 14."Koor Blimey," Economist, October 22, 1988, p. 77.Landau, Pinchas, "Koor Giant Back on Its Feet," Israel Business Today, May 15, 1992, pp. 1.Machlis, Avi, and Dempsey, Judy, "New Owners To Widen Koor's Horizons," Financial Times, January 13, 1998, p. 27.Marcus, Amy Dockser, "Big Israeli Firm and Palestinians Go into Business," Wall Street Journal, October 6, 1993, p. A12.Ozanne, Julian, "Koor Reveals New Strategy for Growth," Financial Times, March 29, 1996, p. 30.------, "Koor's Mr. Turnaround Builds Bridges in the Middle East," Financial Times, February 13, 1995, p. 14.------, "Offering from Koor Draws in Almost $120m," Financial Times, November 14, 1995, p. 33.------, "State Near Completion of Koor Sell-Off," Financial Times, December 29, 1993, p. 15.------, "US Investment Group Agrees To Buy Koor Industries Stake," Financial Times, March 8, 1995, p. 25.Silver, Robert, "Koor Industries: Israel's Conglomerate Restructured," Multinational Business, Spring 1989, pp. 28-29.Waldman, Peter, "Big Brother Is Shown the Door at Koor, Giving Israel's Largest Company a Boost," Wall Street Journal, July 3, 1991, p. A4.

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