Plan Competitive Bid on New, Debt-Free Firm
By BARBARA OPALL-ROME
A Merkava tank, a large portion of which are produced by Israel Military Industries, rolls in a training field in the Golan Heights. (Agence France-Presse)
Ministerial approval, at a milestone meeting at the prime minister’s office in Jerusalem, appears to end a 20-year dispute among MoD, the Treasury and Israel’s powerful labor unions over terms and conditions for privatizing the debt-ridden, yet strategically significant and potentially profitable defense firm.
With a company-reported backlog of US $1.41 billion extending through 2016 and 2012 annual sales of $560 million, government and industry sources assess IMI’s purchase price at about $650 million.
Established prior to Israeli independence in 1948, IMI specializes in a full range of armored products, including the new Iron Fist active protection system for ground vehicles. It produces some 40 percent of Israel’s Merkava Mk4 tanks; has an extensive portfolio of precision rockets, mortars and tank rounds; and provides engineering and upgrades for a broad spectrum of land warfare systems.
While fine details are not yet concluded and the Israeli Knesset still has to sign off on the scheme, the Nov. 27 decision cements agreement by Finance Minister Yair Lapid, Defense Minister Moshe Ya’alon, labor leaders and the IMI board to essential elements of the plan.
Specifically, IMI will retire 1170 employees — about a third of its workforce; evacuate prime real estate in the center of the country; and consolidate all but MoD-designated critical technologies and classified programs into a new, debt-free firm called IMI Systems, to be relocated in southern Israel.
Classified programs and critical technologies, such as heavy propulsion for ballistic missiles and launch vehicles, will remain in government hands under a new 380-employee MoD entity tentatively called Tomer, sources here said.
Sale of the firm’s vast properties is projected to net the government some 25 billion shekels (US $700 million), a portion of which will underwrite pension obligations incurred from a 1990 deal that transformed IMI from a branch of Israel’s MoD to a commercial state-owned company.
Other real estate revenue will cover costs of IMI’s relocation to a government high-tech and industrial complex down south, reinvestment in new production facilities and the creation of a $230 million “safety net” for veteran employees who may not be retained by the winning bidder.
According to a Nov. 27 IMI statement, the privatization proposal is expected to be referred to the Israeli Knesset next month.
In parallel, government officials will prepare a competitive bid that will be open to MoD-approved domestic and international firms. Global firms competing to purchase IMI will be required to establish an Israeli management team and submit to oversight by MoD’s Malmab industrial security bureau.
Retired Maj. Gen. Udi Adam, IMI chairman, estimated that the entire privatization process would take about 18 months.
“At the end of this process in another year and a half, IMI will operate as a privately owned defense company focused on core capabilities and leading technologies adapted to the dynamic and changing market.”
Government and industry sources here said prospective buyers will not be allowed to pick and choose specific IMI business sectors.
Rather, the new firm to be established will be sold only as a single package encompassing all IMI divisions and business units, including Ashot Ashkelon Industries, an IMI subsidiary specializing in suspension, drive train and related systems.
Ya’alon, Israel’s defense minister, said privatization of IMI will have “huge significance to the Israeli economy” while continuing to provide for Israeli defense.
“I praise the approval of IMI privatization. It’s a step that should have been implemented years ago but was prevented due to different disputes,” Ya’alon said in a Nov. 27 statement.
He added, “IMI is a company that on one hand has been burdened with big debts that we can no longer sustain, but on the other hand develops and produces excellent products that helps to safeguard the security of the state of Israel.”
Imri Tov, a former MoD budget director who specializes in Israeli industry issues, said the privatization plan, if fully implemented, promises “extraordinary benefit” to the prospective buyer as well as the government.
“If the company is clear of debt, its capital structure is sound, and the government provides a security net for employees, it will be a bonanza for all sides,” Tov said.