This coming May will mark seventeen years since Russell C. Ellwanger became CEO of Tower Semiconductor (TASE: TSEM; Nasdaq: TSEM). Ellwanger, who had extensive experience in the semiconductor industry, told "Globes" at the time something that sounded like an attempt to convince the company's investors and employees: "I didn't join a failing company. Tower has no such mentality. We have the ability to improve." "The Wall Street Journal" reported yesterday that Intel would buy Tower, and the companies have now confirmed that the acquisition will take place at a price 0f $53 per share in cash, for a total enterprise value of $5.4 billion.
Ellwanger, a Mormon from the US, moved to Israel with his wife and one of his four children (the older ones were at college in the US), and started work. The connection to Tower was made by Eli Harari, the CEO of SanDisk, which was a shareholder in Tower. Harari met Ellwanger when he worked at Applied Materials. "He approached me and asked me to look at the company," Ellwanger related. "I saw that the financial position was not positive, that was known, but the people are fantastic, as is the strength in R&D. I believe that if we do things right, Tower can be successful, and so I took the job," he said then.
The situation at the time was difficult. The company was hemorrhaging cash, and it was not clear whether it would be able to service its bank debt, which amounted to over $500 million.
Fast forward to 2015, when Ellwanger celebrated a decade in the post. In a further interview with "Globes", Ellwanger related how he persuaded the Tower board that he would lead the company to annual revenue of $1 billion within ten years - which indeed happened. Tower also reached an agreement with the banks on conversion of part of the debt to convertible bonds, and later repaid the debt balance. "I feel that we have come a long way, but there's a great deal more to do," Ellwanger said in 2015.
Strong demand
In its 2021 financials, which have not yet been released, Tower is expected to report annual revenue of $1.55 billion, representing year-on-year growth of 23%, and the growth is expected to continue into 2022, with a net profit margin of over 15%, up from 10.6%. Tower has benefitted recently from very strong demand for its products, and from a change in its product mix, as a result of which the average sales price has risen.
Apart from Ellwanger, there were probably few people in 2005 who believed that Tower would ever report such results. One person who did believe was Idan Ofer, who was the controlling shareholder in Tower in its darkest days. Ellwanger has related in the past how he promised Ofer that he had come to Tower for ten years. "I can't exaggerate the importance of Ofer to the fact that the company still exists. He remained committed to us at a time when other investors left," he said.
It's a similar story with shipping company Zim. It too was a company with liquidity difficulties, and controlling shareholder Ofer stayed with it and believed in it. But unlike in the case of Zim, where Ofer still holds shares and has benefitted from the large upside since the company was listed on Wall Street, he parted from Tower in 2016, when Kenon Holdings, which he controls, sold the balance of its shares in the company.
Published by Globes, Israel business news - en.globes.co.il - on February 15, 2022.
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