In the coming days, with one embarrassment following another, the Ministry of Finance will decide whether to cancel the privatization tender for Israel Military Industries. The Prometheus company, one of the two companies that provided a valuation for IMI in the proceedings for its sale, provided consultation service to Elbit Systems - the only company reaching the final hurdle in the tender proceedings for IMI’s privatization.
A source familiar with the agreement between Prometheus and the Government Companies Authority for the valuation of IMI, told “Globes” that the company, managed by founders CEO Yuval Zilberstein and Eyal Szewach, submitted its valuation for IMI last December, and provided consultation services to Elbit Systems’ subsidiary only afterwards.
According to the source, the company is small, with a small work load. In retrospect, regarded the providing of this service to the Elbit Systems subsidiary as a “mistake,” and reported it to the Ministry of Finance. The source added that the consultation services did not involve Elbit Systems’ effort to acquire IMI from the state.
Government Company Authorities head Ori Yogev declined to comment on the matter.
These findings, which were revealed during the Ministry of Finance’s negotiations for privatizing IMI, and which were following by Accountant General Michal Abadi-Boiangiu demanding clarifications, are now being examined by Attorney General Avichai Mandelblit, after State Comptroller Joseph Shapira recently asked him to consider initiating a criminal investigation against Yogev on suspicion of a conflict of interest, among other things concerning management of the tender for selling IMI. In the past, Yogev responded to allegations of improprieties in the IMI tender by saying that no fault had been found with the Government Companies Authority policy on selling the company.
The IMI tender was recently suspended by Ministry of Finance director general Shai Babad, after the possibility was raised that Mandelblit would order a criminal investigation against Yogev at Shapira’s request. If such an investigation is begun, Yogev may be suspended, and it is also possible that the entire tender will be called off. According to a senior source involved in the affair, “A possible cancellation of the tender means going back to square one. The state will again be stuck with IMI, and the company will continue to lose money at the expense of the public, which has paid for IMI’s losses in recent years. A source close to the Government Companies Authority’s activity today said that it would be best for Mandelblit to make a quick decision in the matter. Ministry of Finance sources said that at this stage, it is correct to halt all proceedings pertaining to the privatization of IMI, as long as the suspicions of major faults in the tender had not been disproved. These sources added that the ball was now in the Attorney General’s court.
Sources involved in the IMI privatization tender proceedings said that if the tender is called off, IMI would continue operating in the current format until a new tender was set up for selling the company a procedure liable to take a long time. In this case, it is possible that the companies and groups that competed in recent months for acquiring IMI from the state will return to the picture. The concerns that expressed interest in acquiring IMI from the state include a joint group formed by businessmen Samy Katsav and Meir Shamir; FIMI Fund, headed by Ishay Davidi; US company Flextronics, and others.
A downgraded recommendation for Elbit Systems
Simultaneously, Psagot research department manager Ilanit Sherf today published a downgraded recommendation for Elbit Systems, following the reports of a possible cancellation of the tender for the sale of IMI. Sherf commented on the Elbit Systems share, which was traded at a high price following the negotiations for the acquisition of IMI, saying, “We are downgrading our recommendation, in view of recent developments, mainly due the fact that the share is trading higher than the economic value that we estimated. It is believed that Elbit Systems is willing to pay NIS 1.6 billion for IMI, in the lower range of the earlier valuations of NIS 1.5-3 billion.”
Other sources close to the negotiations that took place between Elbit Systems and the Government Companies Authoroity8 asserted that the belief that Elbit Systems had agreed to pay for NIS 1.6 billion for IMI was unfounded. In the past, senior company officials stated that Elbit Systems was interested in IMI, but not at any price, and would be willing to pay a lower sum, probably substantially lower, than NIS 1.6 billion, because of the need for large investments in the company after the acquisition in order to put IMI on its feet.
In internal Ministry of Finance discussions, Abadi-Boiangiu warned against the low price at which the Government Companies Authority was likely to sell IMI to Elbit Systems. While the Government Companies Authority set a NIS 1.1 billion minimum price for IMI, Abadi-Boiangiu believes that the state can get over NIS 2 billion for the company.
IMI is presenting figures according to which its preparations for privatization had improved the company’s situation. The company’s sales totaled NIS 2.5 billion in 2015, thanks to contracts with the US army and an important contract with the IDF for the supply of precision rockets. The company says that its order backlog for the coming years totals NIS 7.5 billion, and that 1,300 employees have already left the company, thereby benefiting its cash flow. A senior source involved in the privatization proceedings, on the other hand, asserts that the stabilization of IMI is attributable to a NIS 1.5 billion injection from the Ministry of Finance in preparation for the company’s privatization, and that the company would still be losing money otherwise.
Meanwhile, IMI subsidiary Ashot Ashkelon Industries today announced that it had finished 2015 with a NIS 17.2 million net profit and NIS 341 million in sales, compared with a NIS 164 million loss and NIS 284 million in sales in 2015. A large proportion of the 2014 loss was designated for financing the retirement of 90 employees as part of the internal recovery agreements in the company in preparation for privatization and investments in Ashot Ashkelon’s US subsidiary.
Published by Globes [online], Israel business news - www.globes-online.com - on March 28, 2016
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