Three years after the process of privatizing Israel Military Industries Ltd. (IMI Systems) began, a committee for the sale of the government's shares in the company has approved in principle the sale of the IMI to Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), based on a draft drawn up by Ministry of Finance Accountant General Rony Hizkiyahu.
Approval is still contingent on certain changes demanded by the legal advisors on the committee and backed by Government Companies Authority director Yaakov Quint, but these are insubstantial.
Final approval of the deal, which is expected in the coming days, constitutes a considerable achievement for Hizkiyahu, who put all of his weight behind it. Elbit Systems is also eager for the deal, and defense industry sources predicted that it would go along with the contingent conditions in order to enable the deal to go through. On the other hand, Elbit Systems' competitors, Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) and Rafael Advanced Defense Systems Ltd., which hoped that the process would be halted, in view of the preparation of the State Comptroller's report on the propriety of the privatization process conducted during the term of former Government Companies Authority director Ori Yogev, will probably be disappointed. This report is in the final stages of preparation.
In recent months, the Israel Antitrust Authority has also been examining the effects of an Elbit Systems-IMI merger on the other defense companies, especially Rafael and IAI, but is not expected to create difficulties for the merger.
As reported in "Globes," the deal is likely to dramatically increase Elbit Systems' dominance in weapons systems for Israel's land forces. In recent weeks, senior IAI and Rafael executives voiced objections to the Ministry of Defense and the Ministry of Finance to the deal, which they said would enable Elbit Systems to enter sectors in which it was not hitherto active, thereby taking sales away from Rafael and IAI. The company is likely to earn billions from Minister of Defense Avigdor Liberman's decision to equip the IDF with precision rockets and missiles based on systems developed by IMI. Procurement of these systems is projected to reach NIS 7-8 billion in the coming decade.
Hizkiyahu's main accomplishment is to increase the price that Elbit Systems will pay the state to NIS 1.9 billion. Yogev set a target price of only NIS 1.1 billion for IMI.
Minister of Finance Moshe Kahlon decided to entrust the Account General with conducting the negotiations, given his lack of confidence in Yogev, the criticism of the privatization process, and the probe of the matter begun by State Comptroller.
The committee, headed by Quint, demanded certain changes in the agreement according to a legal opinion presented by committee members Ministry of Finance legal advisor Advocate Asi Messing and Government Companies Authority legal advisor Advocate Dalit Zamir.
Sources inform "Globes" that members of the committee disagreed about the addition of other objections, but Quint, up until recently the legal advisor of the Israel Land Authority (ILA), decided in favor of the legal advisors. The state's main concern was other bidders in the original tender might file lawsuits because of the material changes made during the tender process, including the hiring of hundreds of employees by IMI and the demand by ILA that IMI sell one of its plants. Over 10 companies and groups filed documents for the tender published by the state in early 2015. The companies that expressed dissatisfaction in recent months with the propriety of the tender proceedings included companies controlled by businesspeople Sami Katsav and Meir Shamir, who asserted that a great deal of information pertaining to IMI's business activity had not been made available to them during the sale proceeding conducted by the Government Companies Authority.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 13, 2018
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