Israel Military Industries Bidders Say State Overvalued Company

Sources say IMI is not worth minimum bid of NIS 1.1 billion and that terms give Elbit an advantage, de facto leaving it poised to become a 'military monopoly.'

A David's Sling/Magic Wand missile is launched from a truck-mounted launcher, part of the missile defense system developed in partnership with Israel Military Industries.
Israel Military Industries

The state-owned Israel Military Industries is worth far less than the minimum bid of 1.1 billion shekels ($280 million) the Government Companies Authority has set for the arms maker, sources close to a bidder in the privatization process said on Sunday.

The sources, who asked not to be identified, said IMI, which develops and manufactures everything from ammunition to guided missiles and was the original maker of the Uzi submachine gun, is probably not worth more than 600 million shekels to 700 million shekels.

Moreover, they contended, the conditions the government has attached to the sale, including moving facilities to the Negev and ensuring job protection for employees, will cost hundreds of millions more than the government said it will.

As a result, said one source, the number of potential buyers for IMI has fallen from 11 to just two or three, including the Israel defense electronics maker Elbit Systems; a group comprised of the Singapore-based electronics-manufacturing subcontractor Flextronics International and Israeli Gil More; and a third group led by Sami Katzav, who a decade ago bought an IMI small-arms subsidiary. The Katzav group is weighing whether to stay in the bidding.

One source said the only real contender was Elbit, because it had the financial resources to invest hundreds of millions more in IMI after it acquires it. It isn’t at all clear, the sources said, why Flextronics is in the bidding, since it has no arms-making operations of its own.

“If the plan was to conduct a real bidding process, the government would have to take Elbit out of the bidding and not set a minimum price for bids. That is the only way it could have created real competition between the bidders,” he said, noting that state-owned Israel Aerospace Industries — another major domestic defense contractor — was excluded from bidding in the tender. “The tender seems to be designed for Elbit.”

GCA head Ori Yogev defended the tender process and said none of the five bidders authorized by the government to make formal offers had formally notified the state they were dropping out, although he candied some at said os informally.

“The state’s interest in the tender is get the biggest cash amount in order to cover the huge amounts of taxpayer money that has been injected into IMI in the past few years,” Yogev said. “Pressure by interested parties to lower the price won’t work.”

The value of IMI has been much disputed. Sources close to the company itself have valued it at as much as 2.5 billion shekels, but treasury sources estimates it is worth no more than 1.5 billion shekels.

“The government didn’t undertake a systematic financial valuation to fix a minimum price and based it on some estimates,” said one source. “We estimate it’s not worth more than 600 million shekels. The company’s financial reports are very limited and lack a lot of information. It’s not a well-ordered business. It isn’t profitable and must undergo major changes.”

One source said that if Elbit emerged as the winner of the bidding, it would cement its position as a “military monopoly” and its status as what he termed “the operational arms of the defense establishment.”

“The damage won’t be apparent immediately but over the years because Elbit will grow stronger and stronger,” the source said.