With shares in financials and hi-tech getting crushed, I think we are about to see a new trend develop. You’re probably thinking that I will suggest something along the lines of re-branding. Nope. While we did that, I am talking about a change much less cosmetic and much more fundamental. Taking publicly traded companies private. Today’s NY Post (no new revelations on A-Rod/Madonna so I decided to look at the business section) has an interesting report on struggling investment bank Lehman Brothers (LEH) trying to figure out a way to go private.

“According to sources, talks internally centering on privatizing Lehman have gotten very serious consideration after a blistering onslaught of rumors and questions about the firm’s solvency have caused the venerable bond shop to shed more than 79 percent this year.”

Lehman isn’t alone. Israeli hi-tech firm BluePhoenix (BPHX), whose shares have been nailed as well, has mentioned that they are thinking about going private as well.

For companies this is a great situation. They can go private, reset the cap-tables, retain employees- who are currently holding options that even a deep sea diver would have trouble recovering- by issuing new options. Then they can focus on stabilizing their business, getting back to profitability, and then in a few years after this current crisis is a memory, go public in a ‘much anticipated’ IPO. Ultimately, the companies will be back trading at pre-bear market levels. Senior management, who share much if not all the blame for the current debacle, will come out smelling like roses, as their stock will be worth hundreds of millions of dollars.

Sounds good. So who loses? You guessed it. The same people who always get left holding the bag. The INVESTORS. You see, they are the ones who bought into Lehman at $75 a share 12 months ago, and will be lucky to get $15 on a deal of some sort. They heard analysts beat the drum on BluePhoenix at $22 about 9 months ago, and decided to invest, only to cringe every time they hit refresh on Yahoo finance to see if the stock has held the $4 level.

Going private may be a great solution for a company to weather the current market malaise and return to health. Unfortunately for investors, it will be another in a long line of recognized tax losses.

Aaron Katsman, IsraelNewsletter.com

Disclosure: Author’s fund has a position in  BPHX. He has no position in any other stock mentioned as of 7/15/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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The Israeli trade deficit continued to widen in June as a strong Shekel and the cost of fuel imports rose more than the growth in exports. As reported in the Jpost, “The deficit, excluding diamonds, ships and aircraft, increased to a seasonally adjusted $1.27 billion from $1.04b. a year ago, the Central Bureau of Statistics said in a preliminary report Sunday.” I have never thought trade balances mean a whole lot. So what if you run a trade deficit? As colleague Zack ‘check out our new website redesign‘ Miller said to me over a cup of coffee, ” Isn’t it obvious that Israel will become a net importer, as the country becomes wealthier?” Giddy up!

Microsoft (MSFT) is at it again. The Redmond based software giant has agreed to purchase another Israeli company. This time it’s data quality start-up Zoomix. According to unnamed sources in Globes, purchase price is between $20-30 million. Hey Softie, can you spare a million or two?

Hey, anyone know what’s going on at Fundtech (FNDT)? The stock has surged over the last month by more than 15% on heavy volume, in the face of strong headwinds provided by the general market. Fundtech, which provides financial transaction processing software solutions for financial institutions all over the world, has managed to continue to sign deals even as IT spending in the financial sector remains sluggish.

Part of the puzzle as to the dramatic fall in shares of BluePhoenix (BPHX) has been revealed (aside from declining revenues, foggy outlook…). It turns out that US investment group Gilder Gagnon Howe & Co. sold off most of their holdings in the company. Globes reports that according to SEC filings, GGHC held 354,000 BluePhoenix shares at the end of June down from more than 2.2 million shares held at the end of Q1 ‘08. That’s a huge amount of stock hitting the market for such a thinly traded share.

Aaron Katsman, IsraelNewsletter.com

Disclosure: Author’s fund has a position in FNDT, BPHX. He has no position in any other stock mentioned as of 7/14/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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As the shekel continues to advance against most major currencies and especially against the US dollar, Israeli exporters are suffering.  As Katsman wrote recently about software integrator, BluePhoenix (BPHX), currency issues are partly to blame as certain firms feel the pinch on shekel-based research costs and the double-whammy of a macro slowdown.

I’ve heard of Israeli start-ups beginning to hire more employees in the U.S.  The wage differential is almost gone and given the onus of larger benefits packages for Israeli employees, Israeli firms are turning to offshore part of their engineering staff to America.

Imagine an engineer based in the Valley being cheaper than his counterpart in Tel Aviv?!

It’s nuts. (Continue »)

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Aaron Katsman
IsraelNewsletter.com

BluePhoenix Solutions (Nasdaq: BPHX) a leading provider of value-driven legacy modernization solutions was absolutely pounded yesterday on the heels of a couple of analyst EPS downward revisions. The Israeli company saw its stock fall more than 30% as analysts viewed the strong Israeli shekel as impacting earnings.

As reported in the Tech Trader Daily: “Roth Capital’s Nathan Schneiderman notes that Blue Phoenix has nearly 30% of its headcount in Israel, vs. less than 10% of its revenue. He notes that the shekel has appreciated 5% against the dollar since the company provided guidance on May 1.”

“Craig-Hallum’s Jeff Van Rhee made a similar call this morning, lowering EPS estimates “to reflect currency and increasing macro challenges internationally.”

Both analysts lowered future earnings estimates. Schneiderman cut his estimates by about 7-8%. So why should the stock have gotten crushed by 30%? It’s not exactly like BluePhoenix has been soaring and investors are being brought down to earth. It’s not exactly a secret that the Shekel has been strong. I find it hard to believe that investors were “shocked” to see that currency issues would impact earnings. At IOI we have been speaking about this issue for months. In fact both analysts have new $15 price targets. Even pre-rout that was a 50% premium to where it was trading, now at under $7/share we have a target more than 100% above the current stock price.

I am certainly not saying to run out and buy the stock. I am saying something strange is at play here. They are basing their call for ‘09 on continued shekel strength and too much exposure to the financial sector. Have these analysts turned in forex traders? Are they predicting that the Shekel will rise for another full year? Neither one of these issues is new, so why are they only waking up now and dropping numbers? After all the Shekel has been surging higher for more than a year, and we all know that banks will probably chop some IT spending in order to cut costs.

Is this another case of analysts making a call after the fact? If so keep an eye on BluePhoenix, as it may potentially turn into a juicy contrarian play.

Disclosure: Author’s fund has a position in BPHX as of 6/20/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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