Two weeks ago, Berkshire Hathaway (NYSE:BRKa) (NYSE:BRKb) announced its $4 billion acquisition of 80% of Israel's Iscar Metalworking. In Israel, news of the acquisition was greeted with nothing short of national jubilation. It wouldn't surprise me if a Warren E. Buffett Street were dedicated in the Galilee sometime before the next Israeli election. While Israelis certainly appreciate this very visible financial stamp of approval, there are compelling reasons why the deal should make Berkshire shareholders quite happy, too, and strengthen the legendary cachet of the Oracle of Omaha.

Iscar is a stable, thriving business. Established in 1952 by Stef Wertheimer at the age of 25 in his garage, Iscar is considered the world's second-largest metalworking tools manufacturer and is widely regarded as highly profitable. I say "widely regarded," because until now the Wertheimers have been very tight-lipped about the company's finances. Current annual profits are estimated by analysts at $400 million. By this reckoning, at first glance, Berkshire Hathaway is buying Iscar at a P/E multiple of 10. A number of Berkshire Hathaway's other acquisitions have sported P/Es of at least twice that. At second glance, though, the bargain gets even better.

Officially, Berkshire Hathaway isn't buying a single share of Iscar stock -- at least not yet. According to the Israeli business daily, Globes, Berkshire has set up a local Israeli company that will exercise rights over 80% of Iscar's corporate actions. The Wertheimers will own 100% of the old company, but the old company will retain rights to only 20% of Iscar's corporate actions. Why the complexity? In a word, "taxes." This way, Berkshire's purchase fee can be considered "goodwill," and income tax law allows goodwill to be amortized at an annual rate of 10% over a 10-year period. A tax-deductible expense of $400 million (10% of the $4 billion price tag) provides a savings of $100 million every year. Over 10 years, this translates into a tax savings of $1 billion. And that's not all ...

To spur capital investment in infrastructure, Israel's treasury may grant "Strategic Investor" tax status. In return for investing $150 million in Iscar's plant and equipment, this status provides Berkshire Hathaway with tax exemptions on profit increases, capital gains, and dividend distributions for 10 years as well. Even with modest income growth, this means a further savings of a few hundred million dollars.

Factoring a tax saving of around $1.5 billion, the acquisition P/E drops to under 7. Granted, when the 10-year tax honeymoon ends, there will be a jolting tax outlay. However, Buffett, Munger, et. al. reasonably figure that 10 years should bring in a lot of growth to buffer the impact.

Both parties are committed to keeping Iscar a growing concern. Berkshire Hathaway's reputation for standing by a company through thick and thin and for retaining and supporting excellent management is well-known. These were probably factors in the decision of the Wertheimer family to initiate contact with Warren Buffett. The Wertheimers' remaining 20% stake is a very compelling factor of their commitment to continuing and advancing Iscar's growth story.

Iscar apparently had no lack of alternate suitors who wanted to purchase the company and take it public, as some were reportedly willing to pay significantly more, in the range of $7 billion to $8 billion, in order to acquire Iscar. So, why did the Wertheimers take a far lower offer? Why did they sell the family business in the first place? A major reason expressed by Iscar President Eitan Wertheimer is the improved access to major U.S. manufacturing titans, such as the auto industry. Another is the enhanced capability to make further strategic acquisitions and increase global market share with Berkshire's deep cash pockets and networking. It's all about synergy -- the concept that a great business merger or acquisition can become a good deal more than the sum of its parts.

Berkshire Hathaway isn't the first U.S. company to make a major capital investment in Israel. Intel (NASDAQ:INTC), Motorola (NYSE:MOT), and IBM (NYSE:IBM) established major research facilities in the country years ago. Intel's Pentium math coprocessor and Centrino mobile technology were born in its Israel research facility, and the company has a large chip fabrication plant there. Israel also has some major homegrown ventures that have been major movers on American stock exchanges, including Amdocs (NYSE:DOX) and Teva (NASDAQ:TEVA). So, despite some geopolitical turbulence, Israel has demonstrated that its business environment can provide valuable returns on foreign investment.

All in all, Iscar's history of business success, combined with a very attractive investor valuation, support the notion that the Oracle of Omaha has made another trademark deal combining prudence, value, and growth potential.

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Fool contributor Michael Jaffe owns shares of Intel and Berkshire Hathaway.