Apax Partners chairman and veteran businessman Sir Ronald Cohen does not feel comfortable talking about the huge acquisition of the state’s holding in telecommunications company Bezeq (TASE: BZEQ). It may seem odd, but he prefers to steer the conversation in an unconventional direction promoting the peace process in the region through economic development. He prefers to avoid a direct answer to questions about the possible effect of the Trojan Horse affair on the acquisition of Bezeq and whether Apax will continue acquiring communications companies in Israel. On the other hand, he will gladly explain, with sparkling eyes, why he believes that the business community has responsibility for completing the political measures of the peace process.
It is possible that, had the meeting with Cohen taken place a few years ago, the situation would have been reversed, and his eyes would have glittered while he was speaking about private equity deals. However, Cohen, 58, has already announced that he will leave his position at Apax on August 1, in line with the fund’s policy of retirement at age 55-60, and will devote most of his time to contributing to the community. He therefore regards himself as a promoter of a totally different agenda a social agenda.
Cohen founded Apax, today a $20 billion fund, 33 years ago. The fund has been investing in Israel since 1993. The closing of a deal for sale of the state’s holding in Bezeq to a consortium consisting of Apax, Haim Saban, and Moshe (Mori) Arkin for NIS 4.2 billion (about $970 million, of which Apax will pay $420 million) is expected soon. Merrill Lynch was an adviser on the deal, in which the consortium bought 30% of Bezeq, with an option to buy an additional 10.7%.
”We’ve invested in over 40 Israeli companies to date,” Cohen says. “I met with Minister of Finance Benjamin Netanyahu recently, and we talked about our investments in Israel. He said, ‘Yes, but after Bezeq, a different type of deal is involved.’ That’s true. You can’t invest only in companies in the early stages. For us, Bezeq represents investments more closely resembling our model in other countries deals for acquiring control of giant corporations.”
Bezeq certainly fits this definition. “We wanted to buy Bezeq three years ago,” Cohen reminisces, “but we never reached the practical stage, because the government hadn’t made any decision. It’s an emotional issue for them. The truth is that we weren’t sure that the deal would go through until the very end, and I’m glad that they decided in the end to sell.”
"Globes": It wasn’t easy. At one stage, the state even asked you to increase your offer. There were a number of pricing rounds before the finish line was reached.
Cohen: ”Right. I’ve never seen a sale like this before. Actually, we weren’t bidding just against the Beny Alagem group; the state was also one of the bidders. They suddenly said that they wanted more. We thought about it, and said yes.”
What about the price you paid? Didn’t it seem high?
”We think this was the full price. We didn’t pay more than we should have; it’s a good investment. In general, anyone who looks at the investments that Apax has made in the past knows that we don’t like paying too much, and that’s what happened here, too. Furthermore, for evidence, you can look at the share’s behavior.”
Now that you’re moving to Israel, are you planning to become chairman or a director of Bezeq, which the regulations allow you to do?
”I’ve seen the press reports. I don’t plan to become chairman or a director in Bezeq, just as I don’t plan to be chairman of Apax, although they asked me to stay. The truth is that, with my social and community activity, I simply won’t have enough time.”
”We’ll spend more time here”
Cohen has very close connections with people in the Israeli government, and a particularly close relationship with the British Labor Party and Prime Minister Tony Blair. He is considered a major contributor to the British Labor Party. His objective now, as he defines it, is “to live in Israel more of the time.”
”My wife is Israeli. We have an apartment on Hayarkon St. in Tel Aviv, and we’ll certainly spend more time here,” Cohen says. His wife, Sharon Harel, is the daughter of Yosef Harel, commander of the ship Exodus, which sailed from the south of France to Israel in 1947 with a cargo of refugees. Sharon Harel is remembered in Israel mostly as the producer of the move “HaLahaka” (The Troupe). Her resume also includes the movies “Gosford Park,” “Sylvia,” and “Lulu on the Bridge.”
When Cohen was eleven, his family moved from Egypt to the UK, where he spent most of his time on local enterprises before founding Apax Partners in 1972. Now he plans to spend most of his time on community activity.
You certainly see yourself investing in more Israeli companies, perhaps even personally. Is such a model possible for investment in government companies?
”There are certainly things that can interest us in government companies, but I can’t say more on this point.”
Describe what Bezeq will look like in the future
”I hope that Bezeq becomes bigger and more profitable, and that the consumer can get better service, at a lower price, as is the case with large international companies. We also have the financial capacity to support Bezeq later, if necessary. For example, after our initial investment in Yell, the British telephone directory company, we made further investments to support its acquisition of another company. I’m not necessarily saying that this is the direction for Bezeq; it just shows that we can take a government company, make it a private one, and help it exploit the opportunities that it faces.”
Most of your holdings are sold after about five years. What are your plans for Bezeq?
”That’s true, although we also have a thirteen year-old investment at Apax. When we considered the worthwhileness of the deal, we looked at a period of five years or more. It’s definitely possible that we might sell our holding in this time span.”
Cohen describes his education as “Oxford, Harvard, and a Bnei Akiva ulpan (language school), where he acquired his good command of Hebrew.
The meeting took place in the new offices of Portland Trust Fund in Israel in the Azrieli Triangle Tower. The offices are so new that the building engineer is still circulating among the rooms to check that everything is all right. By sheer coincidence, Bezeq’s offices are also in the same compound. “We didn’t know that in advance,” Cohen says half-apologetically.
The peace dividend is here
Portland Trust has officially announced the opening of its Israeli offices. Its chairman will be Cohen, and its professional manager will be Brigidier-General (res.) Ibal Giladi. Cohen, Sir Harry Solomon, and Sir Martin Gilbert founded the fund in the UK in early 2003. Its CEO is Jonathan Kestenbaum, who has spent most of his career in public and government companies in the UK. The fund will work closely with local banks in the Gaza Strip and the West Bank, and is expected to raise about $500 million. The money will guarantee credit lines to private companies from local banks.
”Seven years ago, I decided to devote my time to meaningful things,” Cohen says, “so we decided to create the Portland fund. I spend a lot of my time on developing underprivileged areas in the UK, and advise the government in this direction. I head various task forces. The assumption on which our fund is based is that economic development in the region is essential for developing peace there. We carried out a similar initiative in the UK regarding the conflict in Northern Ireland. The achievements there could never have happened without an improvement in the economy. 200,000 new jobs have been created there, and the people’s standard of living has been improved.”
Isn’t it a little naive to think that you can apply this to the Palestinians?
Solomon: ”I think that a question like yours was asked exactly fifteen years ago in Northern Ireland, and it’s a fact that more stability was achieved, because the British government also realized that it would be more difficult without the economy. It’s obvious that Northern Ireland is different, but there’s a lot to learn from it.”
Cohen: ”When we at Apax began investing in Israel in 1993, people were skeptical. Almost no one spoke about Israeli technology then. They spoke more about socialism and the kibbutz, but the fact is that we invested here in a great many companies, including large ones.”
What is the fund’s vision in Israel?
”We’re a group of business people who think that improving the lives of the Palestinians will help us create a real partner for peace. This is a challenge, but it’s possible to do it.”
Cohen displays a large volume containing a study entitled “Beyond Conflict: The Economic Effect of Peace on Palestinians and Israelis.” The study examines the potential of the Palestinian private sector in creating employment and stability. Portland Trust carried out the study, at the recommendation of the British government.
Giladi advises Israel’s prime minister on disengagement from the Gaza Strip and Northern Samaria. “In the fund, we propose ways that we regard as realistic to cause the economic process to promote, and even supplement, the peace process, while taking security aspects into account, he says.
The study reveals that small family-owned companies are actually the backbone of the Palestinian private sector. According to Portland Trust’s data, less than 1% of the companies registered in the Palestinian Authority employ more than nineteen workers, while 90% of the companies employ less than five workers. Palestinian private firms average 4.9 workers.
The study also shows that employment in Palestinian companies shrank by 10% in 1999-2004, and output dropped by 39.5%. Portland Trust believes that those companies that survived the economic crisis during the fighting have better chances in the future. Where will the most rapid recovery take place following security quiet, insofar as such a utopian vision can be imagined? In Portland Trust’s opinion, it will be in tourism, and the fund also expects a bright future in other areas, from the communications market to stone and marble quarrying.
At this juncture, Cohen begins to talk about the peace dividend between the Palestinians and Israel. Portland Trust says that the Palestinian economy will benefit from a peace dividend of $850 million a year, which amounts to $460 per adult. 1.2 million new jobs will be created. If peace agreements are signed, the Israeli economy will generate $5 billion in additional income lost as a result of the intifada. In the next stage, Portland Trust plans to take the study, and consider how capital can be injected into the private sector, and how small businesses can be encouraged.
How do you feel about your decision to resign from Apax after 33 years, and devote more time to social issues?
”It’s really something that I’ve waited for seven years already, since I decided that that’s what I’d do when I retire. Every contribution from business people is important to us as a society and as a company. When we at Apax go headhunting at universities, people ask us what we’re doing in the social welfare field, and also when we compete for deals around the world. This is important today, and it’s also the reason why I’m taking part in the MAALA (corporate social commitment NGO) conference (in cooperation with "Globes", G.P.) this week on the subject of business and society. I’m a great believer in these directions, and in involvement of the private sector in larger processes.”
Published by Globes [online] - www.globes.co.il - on June 9, 2005