Kobi Richter: KLA wanted to buy Orbotech 35 years ago

Kobi Richter  photo: Ronny Schitzer

The Orbotech co-founder explains why KLA-Tencor's acquisition is good for both the company and Israel.

A celebrity came to Kibbutz Ramat Yohanan in the early 1950s: renowned psychologist Bruno Bettelheim from the University of Chicago. He wanted to question the children who had grown up under unique conditions. His visit is documented in the book, "Children of the Dream," and the film of the same name. One of the stars of that book and film was a boy who Bettelheim thought epitomized the detachment from reality among the kibbutz's children. He wrote that the boy wanted to be both a pilot and a scientist, and did not understand that it was impossible to do both.

That boy was Dr. Kobi Richter, a co-founder of Orbotech Ltd. (Nasdaq: ORBK) and Medinol, who was also a feted combat pilot, a researcher at MIT, an inventor, a successful businessperson in two different areas (machinery for the chip production process and medical equipment), and now leads a social movement. Over the past year, he has been chairperson of the Darkenu movement, which aims to gather the moderate majority in Israel around it. "The motivation is clear. I'm afraid that my grandchildren will not have the same Israel that I had - an Israel in which I won't have to envy anyone in any other country in the world," he says. He conducts his business activities with almost no self-censorship and a lot of self-appreciation. He occasionally quarrels with his partners, but also goes a long way with other partners, mainly with Judith, his wife and partner in medical equipment company Medinol, Kobi Richter's main current commercial business activity.

When he remembers the time he spent at Ramat Yohanan and the dreams he dreamt as a child, and realized, he finds it mostly entertaining. "Bettelheim came with a preconception about the way kibbutz education affected children," he tells "Globes." "He claimed that we would grow up to be conformist and uncreative, and his opinion didn't change at all when he met us. He came to the kibbutz because Nechama, the kibbutz psychologist, had been his student. My father, who was a very tough and mission-oriented man, used to laugh and say, 'Nechama is creating psychopaths so that she'll have somebody to treat.' He told us, 'If a child hides under the table and says that he's a mouse, Nechama asks him what kind of mouse he is, and gives him cheese. I say, if you're a mouse, you'll get a kick under the table, and you'll realize that there's more to being a mouse than privileges.'"

"Globes": In retrospect, what do you think about the kibbutz environment you grew up in?

Richter: "I agree with Bettelheim's argument that non-pluralistic education isn't the best education. When I got to the army, none of my five best friends was a kibbutznik. What attracted me in other people was the pluralistic wealth of people who grew up around adults, not all of whom thought the same way. The grocer was a rightist and the shoemaker was a leftist. This fosters more balanced development."

But is it a fact that kibbutz education produces more limited people?

"I don't agree with that. Israel is full of books and movies saying how bad the kibbutz was, and what misery it created. I think that the kibbutz is one of the biggest assets about the way I grew up. All people, those who became successes and those who weren't so successful, talk about how the way they grew up contributed to their success or failure. The kibbutz is no different from anywhere else in this respect."

More than a week ago, we learned about the upcoming exit at Orbotech, the first company founded by Richter, although Richter himself refuses to call the sale of Orbotech to US company KLA Tencor an "exit." Richter, who founded the company, was smart enough to increase his holding in time, and is now a director and the largest shareholder in the company with a 5.4% stake, and can expect to receive $180 million from the deal.

Orbotech, which develops technology for the manufacturing processes of advanced electronic products, was originally founded as Orbot in 1983. Almost a decade later, in 1992, it merged with Optrotech, and the two companies became Orbotech. Richter resigned from the company, and later founded stents company Medinol with his wife, Judith.

"When we started with Orbot, KLA Tencor, which was then a much larger company than we were, although it was still small, tried to buy us out for peanuts. They approached us arrogantly, as though saying 'If you don't sell out to us, you won't succeed,' and made the same offer to Optrotech. When we thought about someone who might want to make a deal, KLA Tencor was always one of the names mentioned, so their offer came as no surprise."

"You can't call it an exit"

The interview with Richter took place in Medinol's offices in Tel Aviv, where he shares a room with Judith, who serves as the company's CEO. He objects to being identified with the deal.

"I have a holding in shares that translates to so and so many dollars, and that speaks to the readers, but my contribution is no more than that of the three technological partners in the founding of Orbot, and our contribution is no greater than that of the Optrotech founders," he says, and tells how it all began. "We were four technology buffs, and we recruited my brother, Yochai, who is an operations man. The four of us all feature some of the strong points of Israeli high tech - two in algorithms and two in hardware.

"The algorithm people were Prof. Shimon Ullman and I, who came from the vision group in the MIT artificial intelligence laboratory. Shimon was a professor there when I arrived to do a post-doctorate and two years as a visiting professor. We had two characteristics. The first was that we were in the forefront of artificial intelligence development. There was no better team than the one MIT had.

"The second was that both Shimon and I were pilots. There's a kind of myth that the proportion of pilots and people from IDF intelligence Unit 8200 in high-tech is greater than their proportion in the population. Some claim that it's something in their knowledge, in the brain. I think otherwise: people in Unit 8200 acquire a huge amount of experience during their service, and the technology in industry is similar to the technology they dealt with there. As far as pilots are concerned, I argue that they have no specific training. On the contrary; they have a disadvantage - overconfidence.

"Pilots are lone fighters in a bubble. The cries of battle and the smell of wounded people's blood don't reach the cockpit. You develop as sense of 'It won't happen to me,' and confidence makes people take a chance, makes them believe 'I can do it.'

"The two other founders are the hardware people, the late Ami Caspi and Zvi Lapidot, who were involved in building the Weizmann Institute of Science's first computer. They both won the Israel Prize for developing the Israel Air Force's first computerized control system. You have here both infrastructure and the input of experience acquired in a defense industry into civilian industry. My brother joined the four of us with experience in industrial management, and he later became joint CEO with Lapidot, and then sole CEO. Since then, he has been the chairperson."

Orbot competed for a number of years with Optrotech, which was founded before it "by three impressive entrepreneurs: Shlomo Barak, a brilliant scientist, and Emanuel Binnun and Avner Karpol, who had industrial experience. We competed head to head, and shared 100% of the global market between us, with roughly equal shares. We undercut each other, lowered prices, until we were smart enough to swallow our pride and unite in equal shares," Richter remembers

Concerning the merger that created Orbotech, Richter says, "The cynics claimed that Optrotech's contribution was limited to the 'tech' in Orbotech's name, but they did contribute. To this day, Abraham Gross, who came from Optrotech, is still Orbotech's chief scientist."

Of all the founders, you are the only one who still has a large number of shares in Orbotech.

"The reason that I have those shares, in contrast to my brother (Kobi owns 5.4% of Orbotech, compared with 2.1% for Yochai, G.W. and S.H.-V.) is that we began from the same stake that was diluted, but I was lucky that Medinol succeeded, and when I had to build a home for myself and my children, I didn't pay for it by selling Orbotech shares, but Yochai did.

"A few years ago, when the share was at a low point, I bought shares at $10. I more than doubled my holdings, but that didn't make the credit due to me for the company's success any greater."

"I'll be glad to stay connected to Orbotech"

Richter believes that the current deal cannot be called an "exit:" "Orbotech's exit was 30 years ago, when it became a public company in the merger with Optrotech. What's happening now is not five entrepreneurs selling an idea. Things haven't changed for the managers, the wonderful technology people, and the employees. They'll go on working in Yavne, but the shareholders will change. Today, most of the shareholders are not Israelis, and they are certainly not the founders, so the exit happened a long time ago.

"Orbotech is a company that has operated for 35 years, earned profits, exported, and created a basis, so there's no reason to think that it will be more worthwhile for KLA Tencor to operate it anywhere else than in Yavne. As far as I'm concerned, this sale is consistent with returning the maximum value to the economy. Orbotech is a company that will have exports worth more than $1 billion this year, and I hope that it will grow to over $1.5 billion in 2020." Richter gives credit for Orbotech's current position and the acquisition deal to Asher Levy, who has been the company's CEO since 2012: "If you look at the performance of the company's share, from the time that wonderfully talented man called Asher Levy became CEO, the company's value has been built up very nicely."

Richter says that Levy, who came to Orbotech 28 years ago as a salesperson and worked closely with Richter ("he'll tell you tall tales about me"), is a "very talented manager, very orderly, and although he doesn't come from the technological side, he's a very profound person; Rani Cohen, the previous CEO, was wonderfully talented in technology, but his actual performance wasn't as good."

To illustrate Levy's talents, Richter tells about a case involving the connection between the founding brothers. In 2014, Orbotech decided to acquire UK company SPTS for $370 million, but there were hesitations before the acquisition.

"Yochai played a very big part in the company's success, particularly in avoiding all sorts of pitfalls on the way," Richter says. "Yochai was skeptical, like our father. He was a very cautious manager, and I'm completely different. I'm a person who sees opportunities, and my brother sees the risks, but he's no less opinionated than I am. So when a decision had to be made about SPTS, Asher, who was familiar with both of our characters, knew that Yochai was willing to argue with me, and sometimes even to accept my opinion. Asher deserves just as much credit for the fact that Orbotech got as far as it did and is attractive for a deal as any entrepreneur or technology specialist."

Orbotech is a growing company in large and growing markets. Why sell it now?

"Our assessment for the shareholders was that it was right to do a deal at this price. We're convinced that the intention to leave Orbotech as a brand and keep it in Yavne is more significant than just its growth rate. As soon as there's a commitment to the brand and the operation - to the production line worker, the personnel manager, and the testing systems development manager - changing the shareholders should be transparent.

"As soon as you think that the deal is right and worthwhile for the shareholders, and represents growth for the company, this gives the board of directors the legal obligation to approve it, and also matches our wish to have a developing industry in Israel beyond counting the dollars. Following the acquisition, management and the employees will stay, and I know that they are offering the employees attractive terms for remaining. I'll be glad to stay connected to Orbotech if they want me to, and if they don't, I'll be glad to spend here the time I would have been there (referring to Medinol, G.W. and S. H.-V.)."

Published by Globes [online], Israel business news - www.globes-online.com - on March 29, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

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Kobi Richter  photo: Ronny Schitzer
Kobi Richter photo: Ronny Schitzer
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