Liberman halts Israel Aerospace IPO

Avigdor Liberman Photo: Emil Salman, Haaretz
Avigdor Liberman Photo: Emil Salman, Haaretz

Defense Minister Avigdor Liberman is concerned about possible damage to state security.

While Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) and the Government Companies Authority are pushing for a public offering of a minority of shares in the defense company, sources inform "Globes" that Minister of Defense Avigdor Liberman has ordered a complete halt in measures by IAI to promote the offering. Liberman fears possible damage to state security.

Information obtained by "Globes" indicates that Liberman's decision was taken after a series of consultations with Ministry of Defense Deputy Director General responsible for security in the defense establishment Nir Ben Moshe. Ben Moshe's main concern is that even though only a minority of shares in IAI would be issued under the plan, this could have far-reaching effects on preserving Israel's strategic assets in IAI, resulting in severe consequences for national security. The sources added that Ben Moshe is strongly opposed to the measure.

Senior defense sources explained that IAI's involvement is important in a long list of ventures and plans with an extremely high security classification, including Ofek espionage satellites used by the IDF and the defense system, sensitive missile systems, and the Arrow 3 advanced defense system against ballistic missiles.

In recent days, Liberman ordered Ben Moshe and Ministry of Defense Director General Maj. Gen. (res.) Udi Adam to exercise their authority in the matter and instruct the heads of IAI to immediately suspend all measures involving an IPO.

Defense sources familiar with the issue said that the freeze ordered by Liberman would remain in effect at least pending a thorough examination of the risks and consequences incurred in the sales of the state's shares in the company. Sources said that Liberman would demand the professional staff report to him the results of this examination.

A senior Ministry of Defense source confirmed the details to "Globes," saying, "The question is very complicated and sensitive with respect to the way the offering of shares in IAI is being promoted."

The sources added, "The security risks incurred in an offering of shares in IAI raises major questions about the chances and viability of such a measure, should it really start."

In the coming days, supporters of an IPO in IAI are likely to cite the privatization of IMI Systems Ltd. (IMI) as an example of how the state can sell a defense company, while preserving and defending its interests and the sensitive defense activity taking place in the company.

In the case of IMI, classified and sensitive activity in rocket defense was kept in the Ministry of Defense after being separated from the company, and is still being carried out in the framework of Tomer, a new small defense company.

Defense sources say, however, that the attempt to compare IMI to IAI is artificial and unrealistic. The volume of classified activity in IAI is different; it includes spy satellites, sensitive missiles, interception systems, unmanned aerial vehicles (UAVs), powerful radar, etc.

"They hold the defense establishment's most sensitive assets, and there is a good reason why the minister of defense put on the brakes. Liberman is giving Ben Moshe his full backing in this matter, and the chances that the IPO will go through are very poor," a defense sources said.

Liberman's determined stance was decided following the expediting of measures by Government Companies Authority director Yaakov (Yanki) Quint and IAI chairperson Harel Locker in recent months. The two men are continuing their efforts to push the offering through, following a decade of plans that remained on paper and were never carried out.

There are a number of reasons why the plan is being promoted now: IAI's new management, the high priority assigned to the IPO by the Government Companies Authority, and the conclusion of the sale of IMI to Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) for NIS 1.9 billion.

Supporters of the IAI IPO believe that the circumstances have made it possible to take advantage of the momentum created in order to promote this historic measure. Quint believes in the plan and Locker supports it enthusiastically, recognizing the company's need to raise capital in order to realize its goals for the coming years.

The plan for the IPO, which was drawn up four years ago, envisions a two-stage offering of up to 49% of the shares in IAI, and no less than 25%. Early this year, "Globes" reported that the IPO would be at a company value of NIS 11 billion for IAI.

The many efforts to push forward the plan by the Government Companies Authority and IAI are being kept out of the public spotlight. The measure will also require a system of agreements and adjustments with the dominant IAI workers' committee.

The workers will pose additional conditions

IAI workers committee chairperson Yair Katz, who recently assumed his position, is likely to pose a series of conditions for giving the workers' support for the measure. One of the demands is expected to allocation of some of the proceeds from the sale of shares to developing the company, instead of putting it into the state treasury.

Besides the money paid for the share offering, the identity of the new shareholders in IAI and any layoffs and/or streamlining measures before or after the IPO are also of interest to the workers' committee. IAI is in any case already in the throes of a cost-cutting campaign, and has shed 800 workers over the past two years.

IAI's management is likely to initiate the consolidation of the company's civilian business with a new aviation group in the coming months. Such a measure will affect a third of IAI's employees. As of now, no one on behalf of IAI has officially said that the measure will not contain additional layoffs.

Even before encountering the obstacle posed by Katz, however, Locker and IAI president and CEO Nimrod Sheffer will have to overcome opposition from Liberman and Ben Moshe.

IAI and the Ministry of Finance decline to respond to the report.

Published by Globes, Israel business news - - on October 22, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Avigdor Liberman Photo: Emil Salman, Haaretz
Avigdor Liberman Photo: Emil Salman, Haaretz
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