General News Summary

Despite the best efforts of Western leaders and diplomats, Palestinian-Israeli negotiations broken off for more than a year have not restarted, since the Palestinians refuse to return to the negotiation table without pre-conditions.

Prime Minister Benjamin Netanyahu says that the talks should start without delay and declared a 10-month freeze on construction in the settlements. PA President Mahmoud Abbas demands further Israeli action as a pre-condition to negotiate, adopting warmly President Obama's call for Israel to freeze settlements, as a base line prior to talks.

Netanyahu is facing strong opposition inside his own camp to the 10-month freeze on new construction in West Bank settlements, which the PM pushed through his cabinet on November 25. Settlers first resisted government inspectors who came to their communities in Judea and Samaria to deliver individual freeze orders; after the orders were served, there have been attacks on government teams that have come to the settlements to remove heavy earth-moving equipment that would be used to defy the freeze order. The settlers and supporters, including Knesset members in Netanyahu's own Likud party, consider two steps taken by Netanyahu – one earlier this year with Netanyahu's statement - “two states for two nations;” second the freeze itself – as “betrayal” equal to the late Yitzhak Rabin's decision to enter into the Oslo Agreements. They argue that those actions paved the way for the establishment of the Palestinian Authority, and Ariel Sharon's 2005 disengagement, withdrawal from the Gaza Strip and a portion of the northern West Bank. Netanyahu, for his part, insists that the freeze is temporary, and has been trying to placate the settlers by suggesting other benefits, not including construction, during the moratorium period.

But even while he is under attack, the prime minister realizes that the domestic resistance demonstrates to the world how difficult it is to make the serious kind of concessions necessary to reach agreement with the Palestinians dealing with the final status of the West Bank and establishing a Palestinian state.

Steven Spielberg will soon begin filming a docudrama series set in Jerusalem's Shaare Zedek medical center. It will be the first co-production between Dreamworks Studios, in which Spielberg is a partner, and Israeli producer. Spielberg emphasized that, despite his long-time ties to Israel, the project is a commercial production to be marketed globally.

DNA taken from the shrouded remains of a man discovered in a tomb near the Old City of Jerusalem shows him to be the first human proven to have suffered from leprosy, according to Hebrew University researchers and North American and British collaborators. According to The Jerusalem Post English daily, the burial cave, known as the Tomb of the Shroud, is located in the lower Hinnom Valley and part of a first century AD cemetery known as Akeldama, or "Field of Blood" (mentioned in the Book of Matthew 27:3-8, and Acts 1:19 in the New Testament Bible).

The Economy

November's Consumer Price Index rose by 0.3%, about what was expected, the Central Bureau of Statistics reported on December 15. For the first 11 months of 2009, the CIP was up 3.9%, meaning that despite the economic downturn of the last year, Israeli inflation will exceed the top of the government's target of 1-3% for all of 2009 by about 1%. A 5.1% increase in the price of fuels was the most significant factor in the inflationary increase for November.

Meanwhile David Lubin, an analyst for Citigroup Global Markets, anticipates that the market should prepare for even worse inflationary numbers in the next few months. Lubin sees the CPI data as justifying Bank of Israel Governor Prof. Stanley Fischer's recent decision to raise the interest rate and that it is unlikely that the bank will feel forced to raise rates again this month. The analyst pointed out that the year-on-year rise in the CPI in November, and the expected rise over coming months as well, "is partly thanks to hostile base effects."

Israel's total exports in September-November rose by an annualized 56.3%, following an increase of 35% in the previous three months, according to a Central Bureau of Statistics report. High-tech exports, which account for almost half of all industrial exports, leaped by 52%, following a 40.2% rise in the previous three months.

Government revenues from taxes in November, at NIS16.3B ($4.3B), were up 9.3% from November 2008, the first month this year that tax revenues exceeded those of the parallel month in the preceding year. According to the Tax Authority, the higher-than-expected inflow came from private consumption, which was much higher than budgeted estimates. For the first 11 months of 2009, the figure stood at NIS162.9B ($43B), over 94% of the planned amount in the national budget.

Israel was the world's strongest real estate market in the last year, according to the Knight Frank Global House Price Index. Knight Frank, a leading independent global commercial and residential property consultancy, said that over the 12 months ending on September 30, Israel was the only market in the world to register double-digit growth, at 13.7%. The index shows Dubai, down 47% for the same period, at the bottom of the Knight Frank list.

Finance & Investment

The SDL Group, composed of Hutchison Water Ltd., a subsidiary of Hong Kong's Hutchison Whampoa, and Israel desalination technology specialist IDE Technologies, has won the tender to build the 150 million cubic meters Soreq desalination plant. Estimated investment in the project is about NIS 2B ($550M).

According to Globes business daily, the price of the desalinated seawater sold to the state, could be as low as $0.55 per cubic meter, said to be the lowest in the world.

The desalination plant is scheduled to begin supplying water by 2013. Output from the Soreq plant near Yavne, south of Tel Aviv, will be the equivalent of 20% of Israel's total household water consumption.

Fitch's, the financial rating firm, has given Israel an “A” credit ranking, with a Stable outlook. The rating was made after a Fitch team annual visit to Israel earlier in the autumn. In its report, the team said that Israel had weathered the world financial crisis better than most similar economies, while suffering from a recession that was relatively milder than similar European and Asian economies. It cited reforms that had taken place since the 2001-02 recession as the basis both for the economy's growth in 2004-08 and its stable performance in the '08-'09 recession.

In a report published in early November, Deutsche Bank said that Israeli Better Place would have to invest about $1.1B to purchase batteries and create the infrastructure to bring large-scale electric-powered car use to Israel. The German bank, in an analysis, said that Better Place would need to create 142,000 “charging points” around the country by 2015. In addition to building an infrastructure for electric powered cars in Israel, Better Place plans similar networks in Denmark and Hawaii, has launched a prototype station in Yokohama, Japan, and is working towards a deal in Australia. Better Place is headed by Israelis Shai Agassi, the former top official at the SAP software firm, and Idan Ofer, a leading member of the family that controls Zim shipping and the Israel Corp. holding company, among other corporations.

Three major Israeli companies, Africa Israel Investments, Koor Industries and Migdal Insurance and Financial Holdings, will be removed from the Tel Aviv 25 Index of the Tel Aviv Stock Exchange's biggest companies, the TASE said in mid-December. For listing on the prestigious index, the TASE requires that the public hold at least 25% of a company's shares, that the share be among the 75 most-traded on the exchange, and that it has a market cap of at least NIS 600M (about $155M).

Comverse, the Israeli base multimedia and telecom services billing software maker, is to pay shareholders between $200 and $250M in settlement lawsuits stemming out of the firm's backdating of options to top management. The backdating scandal broke out about four years ago and Coby Alexander, the head of the firm based in Ra'anana, left Israel and now lives in Namibia. Last summer, Comverse reached an agreement with the U.S. Securities and Exchange Commission, under which it would not have to pay a fine in the case.

Israeli Yigal Zilka and Austrian Martin Schlaff, both prominent casino owners, have come together to make a joint bid of €120-150M for a 49% controlling share of Casinos Austria International, according to a mid-December report in Globes. Casinos Austria International operates 40 casinos in 16 countries, and on the decks of 10 ships. It has 10 casinos in Austria alone. Zilka owns casinos in Lutraki and Rhodes, in the Greek islands.

Mergers & Acquisitions

Apax Partners, the London-based private equity house, in mid-December contracted to buy a majority stake in Psagot, Israel’s largest investment house, from shareholders led by York Capital Management. Apax bought a 76% stake in a deal that valued Psagot at NIS3.1B ($822M). It remained unclear whether Markstone Capital, which owns the remaining 24%, will choose to sell its stake. A spokesman for Markstone, a U.S.-Israeli investment fund whose American former chairman Elliot Broidy pleaded guilty in the U.S. to bribing four senior officials who managed the New York State pension fund, declined comment.

Apax’s assets in Israel include a stake in Tnuva, Israel’s largest food maker. Apax and two other partners agreed in October to sell their 30.6% stake in Bezeq Israel Telecom, Israel’s largest telecom group, to 012 Smile Communications for NIS6.5B ($1.72B).

French businessman Patrick Darhi is purchasing MIRS, Israel's fourth and smallest mobile phone operator, from Motorola for $170M. Analysts say that Darhi, who through his Cool Holding firm is already the largest shareholder in Israel's HOT, with 40% of the cable TV operator, and seeks to create a telecommunications group able to compete with Bezeq. MIRS currently has a 4-5% market share.

IBM in late November acquired Guardium, an Israeli start-up, currently a Boston-based developer of data security systems, for $225B. Guardium, a spin-off of Israel's Log-On Software, is officially American, having moved all of its operations to Boston in 2003.

The company's management has changed, but is Israeli. One founder, Lior Tal, who also founded start-ups Insightix and SlickAccess, left Guardium when the company relocated to America. One source told Ha'aretz: “The technology is Israeli. The investors are Israeli, the management is partly Israeli and the entrepreneurs are Israeli. True, they moved to the United States and there are now 50 to 60 employees in Herzliya Pituah and Ra'anana who will become rich. But that does not change the fact that it is an exit with an Israel component.”

Guardium develops solutions that allow secure access to enterprise data, including databases from IBM, Oracle, Microsoft and others. It also monitors the software for unauthorized access.

International pharmaceutical company Abbot Laboratories has purchased StarLIMS Technologies for $123M. StarLIMS, which specializes in information management and technology systems for clinical laboratories, which automate the retrieval, communication and management of medical and laboratory data and aid compliance with global regulatory and industry standards, is based in Tel Aviv, with other facilities in the southern Israeli coastal city of Ashkelon and in Florida.

Vivendi of France was the winner in a bidding war with Spain's Telefonica SA for Israeli billionaire Shaul Shani's Swarth Group's controlling stake in Brazilian telecom provider GVT Holding. The price for Shani's 29% was $1.26M, more than double the earlier reported $580M. GVT was founded in 1999 as part of the privatization of Brazil's telecommunications industry. Its CEO is Amos Gavish, and Shani is chairman. Shani helped GVT grow more rapidly than its competitors by focusing on Brazilian private customers and businesses prepared to pay for very high-speed Internet access. GVT has 2.3M fixed-line telephone lines in 81 cities in Brazil. The company posted an operating profit of $300M on $800M revenue in 2008.

Rafael Advanced Defense Systems is in the final stages of negotiations for the purchase of a Brazilian defense company, according to a report in Ha'aretz. Ha'aretz said that the deal, the government-owned Rafael's “first acquisition in the South American economic powerhouse,” was valued at $50M. The talks apparently progressed during President Shimon Peres's November visit to Brazil, during which the Israeli leader met with top officials, among them Brazilian Defense Minister Nelson Jobim.

Meanwhile, Ha'aretz reported that privately owned Israeli defense contractor Elbit Systems is increasing its Brazilian presence and anticipates 30% growth annually on the Brazilian market, which totaled $750M in revenues over the last 15-year period. Elbit reportedly has decided to turn its AEL subsidiary, purchased for $2.3M in 2001 as part of an initial effort to penetrate the Brazilian market, into a center for excellence headquartered in Porto Alegre. Elbit CEO Yossi Ackerman explained the move by saying that Brazil would require local manufacturing facilities, using Brazilian manpower, for future contracts with the country's air force. Elbit is particularly interested in marketing unmanned aerial vehicles to Brazil and to participate in a planned Brazilian UAV tender worth hundreds of millions of dollars.

AEL currently manufactures components for satellites, which could fit into Brazil's space program. According to Ha'aretz, Elbit also sees a possible Brazilian market for space cameras developed by its El-Op subsidiary, which are already used by France and South Korea and the Israeli Ofek satellite.

AEL is also involved in the management of fleets of cars via systems developed to monitor the locations of cars and process driving and traffic data.

TowerJazz, the rebranded name taken by Tower Semiconductors, based in Migdal Haemek near Haifa, and its U.S. subsidiary Jazz Semiconductors, in late November said it had signed a definitive agreement to provide turnkey manufacturing solutions, know-how and training with an unnamed Asian entity. The deal is expected to provide TowerJazz with revenues of $130M, mostly during 2010.

In the past year, TowerJazz has positioned itself to become the global specialty foundry leader. It had third quarter revenues of $79.6M, representing a cumulative 286% growth over the over the past four years. According to a company statement, TowerJazz was also the only foundry to achieve year-over-year growth in 2009 (Q3/Q3), accomplished during one of the biggest downturns in the semiconductor industry's history.

Optonol, an Israeli developer of glaucoma treatments, has been acquired by American eye care firm Alcon for an initial cash payment of $150M, in a deal potentially worth hundreds of millions of dollars. Optonol has a development center at Neve Ilan outside Jerusalem, and corporate headquarters in Kansas City.

The flagship product of Optonol, a spin-off of Jerusalem-based stent maker Medinol, is Ex-Press, a miniature surgical implant used to lower intraocular pressure (IOP) in patients with glaucoma. The company has annual revenue of several million dollars.

Ramat Gan-based Elul Tamarynd is selling its 50% interest in T.M.S. Traffic Management to Megason Electronics and Control. Megason, based in the city of Holon, has been Elul Tamarynd's partner in T.M.S. operations managing traffic in Israel. A T.M.S. system, including cameras and sensors, is used to monitor and manage traffic on Tel Aviv's major expressway, the Ayalon Freeway. Purchase price is reportedly NIS 2.6M ($680,000), plus assignment of an owner's loan.

Cisco Systems, Microsoft and O2, the European arm of international mobile provider Telefonica, reportedly are the leading bidders for Internet phone-call provider Jajah, based in Ra'anana in the high-tech belt northeast of Tel Aviv. Key investors in Jajah, founded in 2005, include Sequoia, Deutsche Telecom, Intel Capital, Globespan Capital and Yair Goldfinger, one of the ICQ instant messaging pioneer Mirabilis, sold more than a decade ago to AOL for $407M.

Founded in 2005, Jajah has 25 million subscribers and is able to connect to 125 countries. Unlike Skype, its biggest competitor, Jajah can be used without earphones, a microphone or telephone connected to a computer. Once the telephone numbers of both the caller and the receiver are entered on its Web site, the call is connected through normal telephones. Another Jajah competitor, Gizmo5 of the U.S., was recently reported to be in advanced stages of takeover negotiations with Google, at a price of about $30M.

In an unrelated development Russia's DST, which recently bought a share in Facebook, reportedly is negotiating to purchase Mirabilis from AOL. According to the Wall Street Journal, the offered price for Mirabilis, which developed ICQ instant messaging software, is $200-$300M, between half and two-thirds of the $407M AOL paid for the Israeli firm in 1996.

Xsights, a joint venture of an arm of government-owned defense contractor Rafael Advanced Defense Systems and the private Elron group has adapted imaging technology used by Rafael in producing guided munitions to Internet advertising. The firm's technology enables capture of any printed matter (e.g. newspaper page, magazines, books, maps, wallposters) using mobile camera-phones, and converts it to an image enhanced with links to targeted and interactive online content. The company, owned 51% by Elbit and 49% by Rafael Development Corp., the commercialization arm of Rafael, says that because it can send simple photo-links to cellphones, the platform “opens new opportunities for targeted advertising and purchasing, either tied to the multi-media video stream or as new interactive print ads.”

Israel Chemicals is reducing its dependence on fertilizers and diversifying into areas like water purification and hygiene, according to a report in Globes. In December, it said it had purchased five European companies. They include Medentech of Ireland, provider of water purification solutions for developing countries; Primalab of France, maker of agricultural hygiene products; Argochem and Merak, both Eastern European suppliers of hygiene products for the food industry; and Ekuline GmbH, a German firm specializing in disinfectants and cleaning products. Total price for the firms was not disclosed, but was estimated at $40M.

The last year has been difficult for ICL, with world demand for potash, and its price, in sharp decline. Potash has long been a mainstay of ICL's business.

Aerospace & Defense

The first system of Heron medium-altitude, long-endurance (MALE) unmanned aerial vehicles was delivered on December 10. The UAVs, made by Israel Aerospace Industries, are part of a September IAI contract with MacDonald Dettwiler and Associates, to supply leased Heron surveillance systems for use by Australian forces in Afghanistan. The Herons are part of the Royal Australian Air Force Project Nankeen, and will significantly boost Canberra's deployed intelligence, surveillance and reconnaissance capability. The Heron system will become operational in early 2010. The lease agreement with MacDonald Dettwiler is worth about $88M for the first two years.

Israel and the United States are close to a deal for development of the next-generation Arrow 3 anti-ballistic missile system, based on breakthrough Israeli technology, according to an early November report in Defense News. A senior IAI source told Globes that Arrow 3 has better maneuverability and interception capability than its predecessors, and is designed to intercept advanced medium-range ballistic missiles.

The missile has not been tested, so the breakthrough technology is only potential, Defense News said. It added that development of the Arrow 3 became urgent in face of the growing Iranian missile threat, that the first test is scheduled in less than two years, and that deployment is due in 2012.

According to the report, Arrow 3 will be equipped with gyroscopically-mounted optical sensors. The maneuvering mechanism will be powered by a second stage engine, rather than the small maneuvering rockets used in U.S. anti-ballistic missiles such as the THAAD. The new technology means that the missile is smaller and cheaper than its predecessors, Uzi Rubin, the first director of the Israel Missile Defense Organization and now an international consultant, told Defense News. Estimated cost of the Arrow 3 is about $400M, over several years.

American foreign aid to Israel will rise by $225M to $2.775B in fiscal year 2010. The figure is included in the Foreign Operations Appropriations bill for fiscal 2010. Fiscal 2009 was the first under a 10-year, $30B agreement on U.S. aid to Israel. Annual aid will rise from $2.55B in 2009 to a ceiling of $3.1B in 2013, and it will remain at that level for the rest of the period.

Like in previous years, Israel can spend up to 25% of the sum for defense purchases from Israeli manufacturers.

Israel will transfer production of its next-generation heavy armored personnel carrier to the United States, according to a report in Defense News. According to Defense News, use of U.S. Foreign Military Funding – FMF, paid with U.S. aid funds, will allow the program production of the Namer, Hebrew for leopard. The advanced APC is based on the hull (body) of Israel's Merkava Mark-4 battle tank, and capable of carrying 11 infantrymen.

Elbit Systems reported that its Hermes 900 unmanned aerial vehicle had a successful maiden flight on December 16.

The Hermes 900 is based on the Hermes 450 that has accumulated over 170,000 flight hours and is one of less than a handful of UAVs in the world to cross the 100,000 operational flight hour's barrier.

The new Hermes 900 offers additional key capabilities, such as longer endurance, flight altitude of more than 30,000 ft, large payload capacity (up to 300kg), modular design allowing fast payload replacement and flight capabilities in adverse weather conditions. Hermes 900 is operated from Elbit Systems universal command control ground station (UGCS).

Elbit Systems and Alliant Techsystems of Minneapolis successfully conducted flight tests of the Guided Advanced Tactical Rocket (GATR) from a U.S. Army rotary-wing helicopter: the OH-58D Kiowa Warrior. The tests took place during a recent U.S. Army Aviation Applied Technology Directorate demonstration at Eglin Air Force Base near Pensacola, Florida. GATR was fired from a Kiowa Warrior helicopter using “lock-on before launch” to engage targets at ranges exceeding 5 kilometers.

BATM, a broadband data and telecommunications systems developer based in Kfar Netter in the Coastal Plain north of Tel Aviv, has received a $5M contract to provide an unnamed foreign military with a modified version of its new-generation secure high-speed access platform.

The contract covers 2010-2011, but BATM expects follow-up orders from the same customer, and hopes the contact will serve as a breakthrough to other defense and homeland security clients.