Israel for Sale

Tnuva isn’t just another Israeli company being snapped up by foreign investors. It isn’t a Waze, whose purchase by Google last year for $1 billion was a source of national pride, or an Iscar, which drew applause locally for being good enough to become the first major foreign acquisition by American investment guru Warren Buffet.

Tnuva, more than any other company in the country, is identified with Israel, its history and ethos. It was established as a cooperative society in 1926 and has grown together with the yishuv and the state, delivering milk, cottage cheese, fresh fruits and meats, through thick and thin, in war and peace.

It’s no wonder then that many in Israel were outraged by the announcement last week that a majority stake was being bought by China’s state-owned Bright Foods Group. What’s next to go to the highest bidder? The Israel Air Force? The Knesset building?

The truth is that Tnuva hasn’t been “Israeli” since Apax Partners, a private British investment firm, purchased a majority stake in it in 2008. But last week’s deal is different. We’re talking about a foreign government assuming a controlling interest in a huge food concern that controls 70 percent of Israel’s dairy market.

“What kind of normal country entrusts its food security and its entire dairy industry to China?” said Labor MK Shelly Yachimovich, calling for the deal to be scrapped in favor of a public share offering that keeps the company in the hands of the Israeli public.

Former Mossad chief Efraim Halevy warned that putting Tnuva in Chinese hands runs a security risk.

“Food is a central issue in any country, and a government’s most basic obligation is to ensure a secure, safe food supply for its citizens,” he said. “This is a security matter, not a financial matter. The government must ensure that there will be no problem in ensuring a supply of food, from Tnuva or other companies.”

In addition, buying Tnuva gives the government of China access to Israel’s cutting-edge technologies. “If we don’t wake up in time, we’ll discover that they will have taken over not only our food supplies but also our academia,” Halevy warned. “It’s imperative that we organize to defend Israeli assets, which constitute essential components of our national security conception.”

And what happens if Israel faces another intifada or war? “When there is a crisis, the company will say, ‘Let’s take productionor R&D and move it elsewhere,’” worries Knesset Economic Affairs Committee Chairman Avishay Braverman, aformer senior World Bank economist.

But national security considerations aside, there is a feeling among many Israelis that they’ve been, pardon the pun, milked in this deal. When Apax bought its majority stake in 2008, the company was valued at NIS 3.9 billion. Today, it’s being sold at a valuation of NIS8.5 billion.

How did investors more than double their money in just six years (and we’re not even talking about the NIS 2.6 billion in dividends the company has issued)?

Apax Partners pat themselves on the back and boast of their outstanding management. “This was a revolution,” says the company’s boss. “Everything was done with precision, with a scalpel.”

But Eli Tsipori, a columnist at the daily economic paper Globes, has a different take on it, one that most Israelis share. “You buy cheaply, extort the consumer, extort the state, leverage the company, leverage the deal, and come out with a huge profit.”

Tnuva under Apax management scandalously raised prices on staples like cottage cheese until, when the price for a nine-ounce (250-gram) container reached NIS 8, the consumer snapped. A call for a cottage cheese boycott by Bnei Brak resident Itzik Elrov quickly snowballed into a revolt that brought millions into the streets in the summer of 2011 and led to the creation of a commission of inquiry to examine the high cost of living.

Not only was the Israeli consumer shortchanged by six years of greedy price gouging, but he receives nothing in the huge sale, as Apax’s tax bill to Israel on the deal is zero.

It’s doubtful that anything can be done at this stage to halt the sale. But a policy needs to be instituted for future deals to assure that foreigners who come to purchase companies in Israel — especially near-monopolies — are not allowed to take unfair advantage of consumers, either in terms of high prices or in the ability to evade taxes on huge profits.

It may be flattering for the local economy to be pursued by international corporations and foreign governments, but the rights of Israelis, both economic and national security, must be the top priority.

This article appeared in print on page 41 of the May 28th, 2014 edition of Hamodia.