Lisa Damast's List: Companies in brief: Week of December 16, 2007

• Mike Milken and me

   

  If Milken puts his innovative mind to Israel's problems, it can only do us good.

   

  Laura Goldman 17 Dec 07   17:05

     

    I had the opportunity recently to catch up with legendary billionaire financier Michael Milken. For me, this was an opportunity to see my investing mentor, since I have spent most of my investment career in distressed securities.

  Starting in 1969, Milken’s central investment thesis has been that many AAA rated bonds would have a higher default rate than single B industrials. As an example, he would cite that AA rated railroads defaulted at a higher rate than B rated industrials from 1900 to 1970.

• His at-the-time radical investment theories essentially created the $600 billion junk bond market that we have today. This innovative financing helped spawn new companies and develop entire industries, like Kindercare, the first chain of day care centers, MCI, the first low cost telecommunications carrier, and Turner Broadcasting (CNN).

  In light of the current turmoil in the AAA-rated credit markets, Mike’s theories look particularly prescient. Despite all the hysteria and hand wringing in bondland, the rating agency Moody’s has announced that there have only been 17 announced defaults this year, compared with 26 for the year 2006.

  During his speech, I learned for the first time why Mike Milken started out as a math/science major at the University of California at Berkeley and then switched to study business. Surprisingly, it was due to the civil rights movement.

• “I came to realize that civil rights meant more than where you could sit on a bus, or eat lunch, or attend school. It also encompassed the chance to start a business and succeed or fail on your own merit. So I changed my major to business and began studying ways to increase access to financial capital for people and companies that had traditionally been excluded from the capital markets.”

  Milken’s thoughts on economic freedom should not be ignored in the Israel-Palestinian peace process. Unfortunately, economic prosperity for the Palestinians is only one piece of the puzzle.

  When Milken started his career on Wall Street in 1969, access to capital for growing businesses was limited. Financial technology, which included securitization, derivatives, and a liquid bond market, is an important component of prosperity. Milken was one of the first to democratize capital.

• He explained, “In the course of my work at Berkeley, and later at Wharton, I developed a formula to explain the components of prosperity. The formula,

  P=Fti*(HCi+SCi+RAi) says that prosperity in any society equals the effect of financial technologies acting as a multiplier on the total value of human capital, social capital, and the real assets that are typically found on balance sheets.”

  Nobel Prize Winner Gary Becker defined human capital as “the knowledge, skills and experience of people.” Milken stated, “In my own career, it has been the most-important factor in determining which entrepreneurs to finance.”

  Milken pointed out that we do not still quantify human capital on the balance sheet. Where is the value of Steve Jobs on the Apple balance sheet? Just before Jobs's comeback, Sony's market capitalization was 15 times that of Apple. Now Apple is worth 3 times Sony, mostly thanks to Steve Jobs.

• There is an economic movement now brewing to attach economic value to human capital and place it on the financial statements of a company.

  Mike continued, “An example of how human capital relates to economic growth can be seen in a comparison of two former British colonies, Jamaica and Singapore, both small islands with sub-tropical climates. As recently as the early 1960s, the per-capita GDP of these two areas was virtually identical, at about US$1,900 (in 2007 dollars). Then they chose different economic paths: Jamaica focused on agriculture, mining and tourism; Singapore invested in its human capital and established an Economic Development Board to lead its industrialization. By 2007, Singapore’s per-capita GDP had grown to about US$32,000. Jamaica remains a relatively underdeveloped economy with 2007 per-capita GDP under US$4,000 (8 times smaller).

  The day after the speech, the Milken Institute held a financial innovations lab to find new ways to finance more scientific research in Israel. There is also an effort underway to bring back Israeli scientists who have gone abroad because of the greater availability of funds for research outside Israel. Milken in his speech and Dan Dankner of Bank Hapoalim (at the Globes Israel Business Conference) both hold up the example of Singapore as a good one for Israel to emulate.

• Although Mike refused to speak to reporters, I was able to glean from his associates some acorns of sage investment advice that I can pass on to you. I had always wondered why Milken preferred bonds over stocks. Nick Mitsakos, now a private investor in San Francisco, said, “When I asked Mike why he preferred bonds over stocks, he told me that you could be right about a company but still not make money on the stock because of the market. With a bond, you will always make money if you were right about the company.”

  Michael Milken did not let obstacles stand in the way of a good investment. Nick said, “When I brought him a good investment except for the tax obligations, he did not say no to the investment. He told me, a 26 year old junior employee, to go and change the tax law. “

  Even when stricken with prostate cancer, Milken did not let obstacles stand in his way. And since the 1980s, he has turned his razor sharp intelligence to revolutionizing health care. If anyone can cure cancer and heart disease, he can.

• In the interests of balanced reporting, my editors insisted that I mention Milken’s 1990 conviction for violating securities laws. But the conviction is not the whole story. "The New York Times" wrote this week about Milken’s prosecutor and now presidential candidate, Rudi Giuliani, “His pursuit of a political career while commanding the prosecutor’s stage stirred deep unease."

  In "The Wall Street Journal" (July 18, 1995), Jonathan Macey, currently a Yale law professor, described the prosecution of Mike Milken as “the vengeful response by American’s business and regulatory establishment to Mr. Milken’s phenomenal success.” He compared Mr. Giuliani’s prosecution of Milken to another black period in American history - Joseph McCarthy's persecution of supposed Communists.

  The world would have been a different and a better place if Milken had been allowed to innovate. Milken’s continued and further involvement in the State of Israel can only help us. In my next column, I will write about the financial innovations lab conducted by the Milken Institute.

  Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own investment advisory, LSG capital, from Tel Aviv. She is an independent commentator, and her views do not necessarily represent those of "Globes".

  Published by Globes [online], Israel business news - www.globes.co.il - on December 17, 2007

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• Israeli women: Harassment vs. high-tech

   

  Defense of women must begin closer to home.

   

  20 Dec 07   20:23

     

    I often wonder why women have not achieved equality by the year 2007. The members of my gender like to blame it on the Y chromosome. Here in Israel, we blame it on the macho culture.

  Recent events have illuminated another possibility closer to home. Women are often their own worst enemies. This phenomenon is not unique to Israel. I saw it in Washington first. During the first Clinton years, I had the privilege of working with the first White House Office of Women. I envisioned that I would be a pink caped crusader for women’s rights; instead my function was to separate women from their money for campaign donations.

• When the intern scandal erupted into the headlines, I departed because I could not understand how any self respecting women could continue to support Bill Clinton. I was obviously wrong because the National Organization of Women (NOW) and its long time president Patricia Ireland stayed in his corner. NOW refused to exploit this perfect opportunity to get on the soapbox and speak out against sexual harassment. When I finally confronted Ms. Ireland, she sheepishly admitted that they had stayed silent to protect a women’s right to abortion.

  Of course abortion rights are important. But women cannot continue to prisoners of their uterus. Sexual harassment and rape have always been the neglected stepsisters of the feminist’s movement. No one, not even the president of NOW, wants to deal with this emotionally charged issue.

  It is a shame that so much attention has been paid to abortion, because the right to have an abortion only affects a small minority of women, while the vast majority of women have either been raped or sexually harassed on the job. A woman is raped every two seconds in the United States. Women will only achieve real equality when they have physical safety and economic freedom.

• 11 years later, women of Digital Eve Israel have shown me that women have not progressed at all on this issue. Israeli women are up in arms about maternity leave but want to bury their head in the sand and pretend that rape and sexual harassment do not exist. There is a rampant fear among women that if we fight for more than one feminist issue at a time that we will lose both wars. By the year 2007, I believe that society has evolved enough to handle both.

  According to its website, Digital Eve is “the women's high tech networking organization. Membership is free. Only posts related to women in high-tech or women in careers in Israel will be allowed through.” In this uniquely Israeli phenomenon, active virtual communities and organizations have sprung up. Women do not simply receive the Digital Eve email List. Over 1000 women are members of an exclusive club that anyone can join. Digital Eve is led by Leemor Machnai and Susan Fisher.

• As someone actively involved with the Tel Aviv rape crisis center, I thought it only natural to post on a list of professional women the twice a year events of the rape center designer clothing bazaar and a concert. Imagine my surprise when I encountered a rejection because the subject of rape was off topic for a list of women in high tech. One Neanderthal moderator told me, “Rape has nothing to do with women in the workplace.” Since this discussion was occurring at the same time as President Katsav’s plea bargain was being challenged at the Supreme Court, I can only assume that this woman did not read the newspapers, watch television or listen to the radio.(Katsav was accused of sexual crimes by a variety of women that worked for him). In my attempts to understand the logic behind the rejection, I was crucified for asking if it was due to religious sensitivities.

  I have to respectfully disagree with the committee and their Stepford wife attitude. Just like in Ira Levin’s Stepford, the women on the Digital Eve (DEVA) committee are working overtime to eliminate anything ugly from the list. Pretending rape does not exist does not stop it from happening. In the year 2004, 32,737 calls were received at the national hotline of the rape crisis centers in Israel.

• Besides inviting people to the event, my post provided a valuable service to the entire community. Rape victims seeing the post would sometimes contact me for assistance. Sometimes the posts prompted people to volunteer or donate to the center. Marketing professionals called me on behalf of their clients and companies. Many marketing people see community involvement as good business.

  The post about the clothing bazaar also has a practical benefit. On limited budgets, looking professional at the office can be a challenge for many women. The designer clothing bazaar offers women a chance to buy clothes at an extraordinary savings. While my posts were being crucified for irrelevance, Joan was allowed to argue, “Prostitution can be a better career for women that secretarial work.” Some of the women tried to organize on the list a nude calendar for women in hi tech in Israel. One woman wrote, “I want to pose for the nude calendar because I want to feel sexy.” I could not believe that this comment was written by a woman in high tech and not Britney Spears. I could no longer feel good about myself if I am associated, however loosely, with women that do not actively support the rape crisis centers. How can we expect men to care about the subject of rape or sexual harassment if we don’t?

• As always, Groucho Marx was right. “I don’t want to be a member of a club that will accept me as a member.”

  The designer clothing bazaar to benefit the rape crisis center is Friday and Saturday, December 21 and 22, at Ganei Taaruha (TA Exhibition Grounds).

  Laura Goldman worked on Wall Street for over twenty years for such firms as Merrill Lynch and UBS Warburg. She now runs her own investment advisory, LSG capital, from Tel Aviv. She is an independent commentator, and her views do not necessarily represent those of "Globes".

  Published by Globes [online], Israel business news - www.globes.co.il - on December 20, 2007

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• World Bank mulls financing Negev solar project

   

  The planned 250-MW plant will be one of the largest solar power plants in the world.

   

  Lior Baron 20 Dec 07   13:59

     

    The World Bank is considering financing the proposed solar energy power station planned to be built in the Negev. A World Bank delegation may visit Israel to meet officials from the Ministries of Finance and National Infrastructures to discuss the project. The World Bank has already expressing its willingness to finance the Red-Dead Sea canal, or "Peace canal", subject to a feasibility study.

  A joint Ministries of Finance and National Infrastructures delegation attended a World Trade Organization conference on infrastructures last week to interest investors in the Negev solar power plant and other infrastructure project. The delegation departed even before the government has published a tender for the solar power plant. The delegation also presented the Dan Region Sewage Reclamation Project (Shafdan) project, the Krayot bypass road and lateral Road 531.

• The Negev solar energy plant attracted the most attention. The government recently approved plans for a BOT tender for the 250-megawatt power station, which will cost $600-700 million. When completed, it will be one of the largest solar power plants in the world.

  Published by Globes [online], Israel business news - www.globes-online.com - on December 20, 2007

• Evogene and Ormat subsidiary receive biodiesel grant

   

  The firms hope to improve oil yield.

   

  Globes' correspondent 20 Dec 07   20:03

     

    Evogene Ltd. (TASE: EVGN) and Orfuel Inc, a US subsidiary of Ormat Industries Ltd (TASE:ORMAT), signed an agreement with the BIRD Foundation (Israel-US Binational Industrial Research and Development Foundation) to obtain a grant from the foundation for financial support of a joint project of Evogene and Orfuel in the field of alternative energy. A principle approval for the grant was obtained on July 25th, 2007.

  The parties obtained an approval for a one million US dollars grant from the BIRD foundation, which constitute half of the initial budget allocated to the project. The project is expected to last three years.

• The Evogene and Orfuel joint project is aimed at providing substantially improved feedstock sources for biodiesel production. The companies collaborate to develop non edible plants, displaying improved oil yield and capable of being grown in non arable lands, thus addressing key problems facing the industry.

  Shares in Rehovot-based Evogene rose 0.2% today to NIS 4.53, reflecting a market cap of NIS 88.8 million.

  Published by Globes [online], Israel business news - www.globes-online.com - on December 20, 2007