Regulator approves Elbit-IMI merger

Michal Halperin Photo: PR

"An examination of the merger showed that it would not arouse reasonable concern about major damage to competition."

Antitrust Authority director general Adv. Michal Halperin has approved the merger between Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT) and IMI Systems Ltd. (IMI) at the conclusion of a lengthy privatization process, the Antitrust Authority announced today. Elbit Systems, controlled by businessperson Michael Federmann, will acquire IMI from the state for NIS 1.8 billion.

Halperin found no reasons involving competition for not allowing the deal to go through. The Antitrust Authority stated, "An examination of the merger showed that it would not arouse reasonable concern about major damage to competition. It was found that the overlap between the respective activities of Elbit Systems and IMI was fairly marginal. In the areas where overlap did exist, competition exists with Israeli or overseas suppliers."

The Antitrust Authority has been conducting its examination for many months, but from the beginning was not expected to create difficulties about the deal, although defense industry sources, primarily in Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) and Rafael Advanced Defense Systems Ltd., argued during the privatization process that the sale of IMI to Elbit Systems would give Elbit Systems the status of an arms monopoly, thereby affecting procurement by the Ministry of Defense and creating dependence on Elbit Systems.

"The concern about the Ministry of Defense's dependence on Elbit Systems, especially concerning the supply of weapons systems to the land army, was answered," the Antitrust Authority stated. "There is considerable competition in some of the areas in which the merged company operates, and the Ministry of Defense has a special status in the defense sector possessed by no other government ministries responsible for various sectors of the economy. In practice, the Ministry of Defense wears three hats: that of an important customer, a regulator, and an overseas sales promotor. This status relieves any concern that the merged company will exert market power against the Ministry of Defense."

The Ministry of Defense said on a number of occasions, including in the examination conducted by the Antitrust Authority in recent months, that it supported the sale of IMI to Elbit Systems. Where the Antitrust Authority is concerned, this stance by the Ministry of Defense means that it has no worries about Elbit Systems accumulating too much power from the acquisition of IMI.

The Antitrust Authority's check showed that the merged company was unlikely to thwart competitors or affect the supply of various inputs required by competitors in order the production of other systems, especially because Elbit Systems has no motive for doing so.

According to IMI's privatization agreement, Elbit Systems will receive the knowledge required to produce light rocket propulsion systems, among other things, but the activity relating to this will remain in the hand of government defense company Tomer Systems, which was founded as part of the privatization of IMI so that the state would be able to preserve sensitive strategic infrastructure relating to TASE, such as rocket propulsion.

The Antitrust Authority said today that according to the arrangement made, Tomer would be authorized to produce light rocket propulsion systems on the basis of know-how belonging to the merged company, thereby ensuring the supply of these systems to other companies that have relied on them up until now, such as IAI and Rafael. Both of these companies expressed concern that privatization of IMI would culminate in Elbit Systems taking over rocket propulsion systems and that later products used by them would be sold to them at higher prices. The Antitrust Authority also barred Elbit Systems from interfering in Tomer's affairs involving the supply of light rocket propulsion systems to Rafael and IAI subsidiary Elta.

The Antitrust Authority also addressed concern that the Elbit Systems-IMI merger would affect the abilities of other defense companies to interface with digital communications and control systems for the land-based army installed a decade ago in ground troop units. In the past, defense sources said that the acquisition of IMI by Elbit Systems would give the latter an incentive to damage the capabilities of competitors seeking to enter this field and prevent them from interfacing between the systems of other companies and the digital communications and control systems.

The Antitrust Authority made it clear that these concerns had been relieved after the Ministry of Defense had made it clear to the Antitrust Authority director general that it was taking measures to put the digital communications and control system in an open architecture, so that the systems of other companies could be integrated quickly and easily with Elbit Systems' digital communications and control system. The Antitrust Authority believes that this measure will reduce the Ministry of Defense's dependence on Elbit Systems.

The Antitrust Authority director general's examination of the merger began even before a formal announcement of the merger had been received from the parties involved. The state team responsible for the privatization process was working continuously with the Antitrust Authority even before the privatization agreement was signed. In view of these measures, the Antitrust Authority believes that some of the possible concern that the privatization agreement had been answered during the formulation of the agreement. The Antitrust Authority says that as a result, approval of the agreement would be possible within a fairly short time after it was presented to the Antitrust Authority for examination.

Published by Globes [online], Israel business news - www.globes-online.com - on August 20, 2018

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

Michal Halperin Photo: PR
Michal Halperin Photo: PR
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