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Israel Advances IMI Privatization Plan

If Approved, Asking Price Assessed at US$600 Million

Sep. 16, 2013 - 03:45AM   |  
By BARBARA OPALL-ROME   |   Comments
Israel Military Industries produces about 40 percent of Israel's Merkava Mk4 main battle tank.
Israel Military Industries produces about 40 percent of Israel's Merkava Mk4 main battle tank. (Bradley Peniston)
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TEL AVIV — After decades of discussion, the Israeli government is advancing a plan that, if approved, could result in the privatization of Israel Military Industries (IMI), the nation’s oldest defense firm.

Under the plan approved Monday by IMI’s board of directors, the firm will retire some 950 employees, which is about a third of its workforce; leave prime real estate in the center of the country; and consolidate all but government-designated critical technologies into a new, streamlined firm tentatively called “New IMI” in southern Israel.

The prospective sale of IMI’s vast real-estate holdings is expected to net the government some 20 billion shekels (US $5.7 billion), a portion of which will be used to cover ongoing pension obligations that have mired the company in decades of debt.

If approved and implemented according to an agreement hammered out in painstaking negotiations with the IMI workers committee and the national labor union, New IMI should be smaller, more competitive and available to government-approved investors for approximately $600 million, company executives here say.

IMI announced on Monday that the privatization plan will be presented to Prime Minister Benjamin Netanyahu, Finance Minister Yair Lapid and Defense Minister Moshe Ya’alon in a meeting scheduled for Oct. 15.

“The expected government decision is an important milestone for the company’s recovery and will pave the path to implementation of a number of organizational and business moves” aimed at preparing the company for privatization, IMI Chairman Udi Adam said.

According to IMI, the company reached an agreement in principle with Israel’s Defense Ministry that identifies critical technologies and strategic infrastructure that will remain in government hands.

IMI declined to detail specific business units or technologies that will not be available to outside investors, but sources here said MoD is unlikely to relinquish heavy propulsion capabilities developed by the firm’s Givon Rocket Systems Division.

Imri Tov, a former Defense Ministry budget director who specializes in Israeli industrial base issues, said the agreement between IMI management and the labor unions marks a significant step in a decades-long push for privatization. Nevertheless, he recommended waiting for the outcome of next month’s ministerial meeting to realistically assess the prospects for privatization.

“Various schemes have made it up to the prime minister’s level in the past; and at one point in the early 1990s, [then-Prime Minister Yitzhak] Rabin actually approved a plan,” Tov said.

In a Monday interview, Tov said it could cost the government several billion shekels to absolve the company of previous debt, cover costs of the 950 employees slated for retirement, and create a safety net for another 1,050 employees who may be asked to leave by prospective new owners.

Similarly, he said the MoD would have to bear “not insignificant costs” for the firm’s transfer to southern Israel and for maintaining and operating former IMI units designated as critical technologies.

“We’re talking here about a mega project that will cost billions of shekels and could take years to implement,” Tov said. “At this point, it remains unclear exactly what will be put up for sale, what will remain in government hands, and what specific obligations will be passed on to prospective investors.”

According to IMI’s statement, the company has a backlog of some 5 billion shekels, and posted year-end 2012 sales of 1.9 billion shekels. Some 70 percent of IMI turnover is export sales.

The firm produces about 40 percent of Israel’s Merkava Mk4 main battle tank; has an extensive portfolio of precision rockets, mortars and artillery systems; and provides system engineering and upgrades for a broad spectrum of land warfare systems. Additionally, the firm specializes in a full range of armored solutions, including the new Iron Fist active protection system for ground vehicles.

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