Israel Military Industries Tender in Doubt After Flextronics Quits Bidding

U.S. company’s withdrawal leaves Elbit as sole bidder for arms maker.

Alon Ron

The government’s sale of Israel Military Industries is likely to be canceled after Flextronics, a Singapore-based electronics subcontractor, withdrew its bid on Thursday, leaving Elbit Systems as the sole bidder.

The decision by Flextronics, which was bidding through its Israeli unit, came in the final stretch of the tender for the state-owned arms maker, whose products range from ammunition to guided missiles and once included the iconic Uzi submachine gun.

Five bidders had been approved by the government, but by this week the number had been whittled down to two, although some of the original five have not officially announced their withdrawal and could decide to participate if the tender does take place.

IMI’s privatization has been a prolonged process accompanied by anonymously submitted accusations and conflicts of interest, especially vis-a-vis Elbit Industries, Israel’s biggest private-sector defense company.

Earlier Thursday, the tenders committee of the Government Corporations Authority, which is overseeing the sales process, met for five hours to weigh anonymously submitted complaints about conflicts of interest marring the process.

The committee didn’t reveal its conclusions but they are expected to go to Finance Minister Moshe Kahlon on Sunday. He is supposed to decide, together with Finance Ministry Director General Shai Babad, whether to proceed with the IMI tender.

Although only Elbit and Flextronics filed the paper needed to formally bid for IMI this week, other groups never formally announced they were dropping out and may be waiting to see whether the sale is going to be cancelled or not. They still have several days to submit their papers.

The complaints, which were submitted to the State Comptroller’s Office, alleged that Ori Yogev, the head of the authority, was heard saying that the defense establishment was pressuring the tenders committee to favor Elbit’s bid. Associates of Yogev say, also anonymously, that his remarks were taken out of context.

The complaint also dealt with a separate alleged conflict of interest that favored Elbit, namely that the same accounting firm — presumably Ernst & Young — was used by Elbit, the authority and IMI. If true, that would favor Elbit, but sources said the firm worked with Elbit and one other bidder — but neither with the authority or with IMI.

Critics said whether or not there are conflicts of interest, Elbit appeared likely to win the tender. Flextronics has no defense businesses of its own and it was not clear why it entered the bidding to begin with.

Elbit, which is already one of the biggest defense contractors to the Israeli military, would be able to squeeze the most economies of scale out of an IMI acquisition and thus would be ready to offer the highest bid.

The government had set a minimum price of 1.1 billion shekels ($280 million), but sources told TheMarker this week that the floor prices overvalued IMI.