Israeli Defense Firm Completes Purchase of State-owned Rival After Government Approval

As part of Elbit's takeover, IMI's operations will be moved and more than 30,000 housing units will be built

File photo: The Hermes 900 unmanned aerial vehicle (UAV) manufactured by Elbit Systems Ltd. displayed during the Singapore Airshow held at the Changi Exhibition Centre in Singapore, February 11, 2014.

Five years after deciding to put Israel Military Industries on the block, the state finally sold its share in the government-owned weapons manufacturer to the privately held Elbit on Sunday. This is one of the biggest deals in Israel’s weapons sector to date. 

Elbit will be paying 1.8 billion ($495 million) or 1.9 billion shekels to the state.

The amount that the state will save following the sale is part of what helped the Finance Ministry officials to convince the Defense Ministry to give the deal the go-ahead.

Finance officials presented data indicating that IMI is losing an average of 250 million shekels a year, and that the state has needed to inject 5 billion shekels into the company to keep it alive over the past few decades. 

Some sources familiar with the company say that in practice, the state has actually injected closer to 10 billion into IMI over the years.

Of the money Elbit is paying for IMI, only 500 million or so is expected to go into state coffers. The remainder will go to covering IMI’s obligations.

The deal was carried out a week after Avigdor Lieberman resigned as defense minister, and Prime Minister Benjamin Netanyahu took up the post. Lieberman had been hesitant to approve the deal, and delayed it, citing security considerations. Plenty of defense officials failed to understand Lieberman’s reasoning, and speculated that the deal would only go through after he left office.

Netanyahu favors privatization as a matter of principle, and pushed through the deal quickly after taking over from Lieberman. 

Netanyahu is also a longtime acquaintance of Elbit controlling shareholder Michael Federmann, who, like Netanyahu, went through the Israel Defense Forces elite Sayeret Matkal unit.

The acquisition was approved last week, shortly after Lieberman’s resignation.

Elbit is slated to pay 1.4 billion shekels now, and another 400 million shekels in 2020 and 2022. The company may pay an extra 100 million shekels depending on IMI’s financial results.

The deal calls for vacating IMI’s operations at its Ramat Hasharon and Tirat Hacarmel complexes, thus enabling that land to be used to build more than 30,000 homes in high-demand areas. IMI’s operations will be moved to Ramat Beka, in Israel’s southern Negev desert.

“The synergy between the capabilities of the two companies ... will enable us to offer an enhanced portfolio and to realize the potential of the technologies of IMI in the international arena, making this acquisition significant to our long-term growth strategy,” Elbit CEO Bezhalel Machlis said.

The government announced in 2013 its intention to privatize IMI, a manufacturer of military systems best known for being an early maker of the Uzi submachine gun. Elbit was the last remaining bidder among five that had shown interest.

Defense Ministry Director General Uzi Adam noted that IMI’s acquisition by an Israeli company insured that its defense know-how would stay within the country, while improving Israel’s defense exports.

With reporting by Reuters.