Ministry of Finance director general Shai Babad recently appointed Maj. Gen. (res.) Yaakov Amidror to examine the proceedings by the Government Companies Authority for the privatization of Israel Military Industries Ltd. (IMI Systems). The sale of IMI was frozen six months ago, following intervention by State Comptroller Joseph Shapira.
Amidror's appointment followed a discussion between Babad and Ministry of Defense director general Maj. Gen. (res.) Udi Adam, after Shapira issued a draft report critical of how the IMI privatization process was conducted. Sources involved in the matter told "Globes" that Babad and Adam had decided that Amidror would be an "independent examiner" in the affair, and would decide whether the findings arising from the State Comptroller's draft report were significant enough to affect the state's ability to continue IMI's privatization on the current format.
Completely owned by the state, IMI is one of Israel's four largest defense companies. Six months ago, over 10 Israeli and foreign companies and groups competed for the acquisition, but only Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT), controlled by businessman Michael (Mickey) Federmann, made it to the final hurdle.
Yogev promoted
The Government Companies Authority, headed by Ori Yogev, led the privatization process. Babad suspended the process after allegations were made concerning his conduct. Yogev insisted on pushing the process forward, and began accelerated negotiations with Elbit Systems on the price the latter would pay the state for acquiring IMI. Ministry of Finance senior officials, however, including outgoing Accountant General Michal Abadi-Boiangiu, were strongly opposed to this action. They asserted that the state could sell IMI at a much higher price than the NIS 1.3 billion price tag cited in some of the valuations. The State Comptroller's assessment led to the suspension of the proceedings in the matter.
During the months prior to the State Comptroller's examination, it emerged that one of the companies making a valuation for IMI on behalf of the state had previously provided services to a subsidiary of Elbit Systems, the only company still in the tender process.
Another impropriety cited in recent months by parties involved in the privatization process was the absence of an opinion by the Antitrust Authority director general about the effect of IMI's sale to Elbit Systems on the other defense companies in Israel and Ministry of Defense's bargaining power in doing business with Elbit Systems. The acquisition of IMI will boost Elbit Systems' development and production capabilities.
Babad and Adam decided that Amidror would also examine a possible effect of Elbit Systems' acquisition of IMI on companies such as Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) and Rafael Advanced Defense Systems Ltd.. These two companies are also fully state-owned defense companies.
"Globes" revealed last August that IMI and Rafael were objecting to the sale of IMI to Elbit Systems. The biggest concern was expressed by parties in Rafael, who warned that by acquiring IMI, Elbit Systems would gain new capabilities in rocket propulsion and precise rockets currently possessed by IMI.
Waiting for Halperin
Sources involved in the matter told "Globes" that Amidror would submit a report with his conclusions to the Ministries of Finance and Defense by mid-February 2017, and would provide answers to critical questions pertaining to continuation of the IMI sale process. Amidror's examination will entail hearing the view of IMI and Rafael, as well as the Ministry of Defense's view on whether the sale of IMI to Elbit Systems would affect its bargaining power in future procurement of weapons systems for IDF use.
Senior Ministry of Finance officials made it clear more than six months ago, however, that there was no avoiding a comprehensive assessment by Antitrust Authority director general Michal Halperin of the effect of the sale of IMI to Elbit Systems on the other defense industries. Such an assessment has yet to begin. Sources inform "Globes" that a team designated to examine the matter on behalf of the Antitrust Authority has not yet begun an examination of the proceedings, and that its members have yet to receive the appropriate security clearance.
The Ministry of Defense announced on Sunday that it had signed a multi-year agreement with IMI to procure precise rockets, missiles, and ammunition of various types at a total cost of NIS 1.75 billion. The agreement applies to 2019-2025, and the Ministry of Defense noted that it would provide the future buyer of IMI with the economic certainty necessary to implement the previous cabinet decision that IMI would transfer its activity to Ramat Beka in the Negev by 2022 following the privatization of the company.
Published by Globes [online], Israel Business News - www.globes-online.com - on January 3, 2017
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