TEL AVIV — Israel has passed the point of no return in its plans to sell Israel Military Industries (IMI) to the highest qualified bidder by the end of this year, according to the man charged with overseeing privatization of the nation's oldest defense firm.
By autumn, the government aims to announce the winning bidder or consortium of investors in IMI Systems, a restructured, debt-free, advanced technology-oriented spinoff of IMI, an 82-year-old firm that predates Israeli independence.
Up to 90 percent equity in the new firm is being offered to eligible foreign investors, with transaction closing slated by the end of December.
In an interview shortly before last Tuesday's election, Yogev said neither the current lame duck government nor the one to be formed under fourth-term leadership of Prime Minister Benjamin Netanyahu are interested or even capable of halting the process.
"We have the force of a formal government decision driving this and there is consensus among all the political players," he said.
"There won't be a new defense minister who can do anything differently. We would need a new prime minister, finance minister and defense minister to jump in and battle the consensus, and that simply won't happen."
In April, the GCA, IMI management and advisers from Stifel, Nicolaus & Co. — a US-based brokerage and investment banking firm hired by the government to assist in the sale — will embark on a road show aimed at cultivating interest among prospective buyers in the US and possibly Europe.
"At this stage, the [bank guarantee] allows preliminarily certified candidates into the data room where they'll see the entire agreement, closing schedules and all they need to conduct due diligence. Then, if they decide they really want to bid, candidates will undergo a final screening by MoD to determine eligibility," Yogev said.
Under the closure of sale process, MoD-cleared candidates have until mid-September to submit bids, along with a prerequisite $8.5 million bank guarantee. The government plans to sell IMI to the highest bidder, with transaction closing slated by the end of the year.
He noted that the government retains the option to negotiate a best and final offer, should offers fall short of IMI's assessed value of some $600 million.
"That's our prerogative if we think it's necessary, but our intention is to solicit very serious bids from qualified candidates and then to go WORD MISSING for the highest offer," Yogev said.
"We are taking all the problems of the past and leaving them in the government's hands," Yogev said.
"The company we're offering is debt-free and cleansed of all legal claims. It's a company with a rich heritage that boasts a record backlog of more than $2 billion based on fully transparent and internationally accepted accounting procedures," Yogev said.
Vital Strategic Asset
Designated by the government a vital strategic asset, the new firm will remain an Israeli company, managed by Israeli nations and subject to Israeli laws and Defense Ministry security procedures.
According to data posted on the GCA's website, candidate investors will be disqualified if they are: "a hostile state; a citizen or resident of a hostile state; a corporation that was signed or whose center of business is in a hostile state; a corporation controlled by a hostile state or citizen and/or resident of a hostile state; or a foreign state."
The company will be sold as a single entity apart from heavy rocket propulsion systems and other classified programs that will remain in government hands under a new company, called Tomer, to be managed by MoD.
Yogev estimates that all but "a few hundred million shekels" of IMI's $2.125 billion backlog and 380 of its 2,700-strong workforce will be transferred to state-owned Tomer.
"There's a small, but very important part of IMI that we will not transfer to private ownership. But Tomer will not compete with the privatized IMI. On the contrary, Tomer has a strong agreement with IMI to cooperate in future. The new IMI will produce for Tomer and will be a market for some of its technologies," he said.
IMI Managing Director Avi Felder noted that the new company up for sale has undergone a significant restructuring and efficiency streamlining, with hundreds of millions of shekels invested in upgraded infrastructure and new product lines.
"We're well positioned across a very focused and value-added spectrum of the defense and homeland security market," Felder said.
According to the GCA's website, IMI streamlined its operations from five divisions with 11 units into three divisions — firepower, maneuverability and small caliber ammunition — with five customer-oriented business units.
GCA noted that the firm routinely invests some $110 million in Israeli government- or customer-funded research and development and is now operating under high environmental, health and safety standards as required by Israeli law.
"At the beginning of 2016, IMI is set to operate as a leading international defense company under private ownership," said retired Israeli Maj. Gen. Udi Adam, IMI's chairman.
"As a private company, IMI will have more managerial flexibility to maximize existing capabilities and fortify future competitiveness on the global market," he added.
Opall-Rome is Israel bureau chief for Defense News. She has been covering U.S.-Israel strategic cooperation, Mideast security and missile defense since May 1988. She lives north of Tel Aviv. Visit her website at www.opall-rome.com.