Cabinet Panel Approves Plan to Sell 40% Stake in Israel's Postal Service

Half will be sold to a strategic investor and the remainder will follow two years later in a public offering

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An Israel Post office
An Israel Post officeCredit: Rami Shllush

The government’s ministerial privatization committee on Monday approved a plan to sell a 40% stake in Israel Post, half to a strategic investor and half to the public through an initial public offering, the Finance Ministry said.

Under the plan, which was first reported by TheMarker last week, the government will seek to sell a 20% stake in the postal service to a strategic investor in Israel or abroad, who will be obligated to retain the shares for at least seven years.

Although the government will retain a majority stake, the investor will be able to “influence” the selection of the CEO and the chairs of the board’s finance and human resources committees, thereby being able to exert control.

The plan calls for an IPO on the Tel Aviv Stock Exchange of a 20% holding in Israel Post in the second stage, two years later. However, the ministerial committee decided that if no strategic investor is found, then a 40% holding in Israel Post will be sold to the public.

The treasury said it was exploring ways to ensure the government’s critical interests in Israel Post and its postal bank subsidiary, among other matters, by requiring official approval for anyone holding 5% or more of their shares.

The privatization plan comes as Israel’s postal service is struggling to stay relevant in an era of email. Its core business of delivering letters has been in decline for many years and, while a surge of online shopping by Israelis has increased demand for package deliveries, Israel Post has failed to keep up with the pace, resulting in lost, delayed and damaged goods.

Three years ago, the postal service undertook a recovery plan that called for staffing cuts, more user-friendly post office business hours and package pick-up centers. But after seeing profits rise to 48 million shekels ($13 million) the following year, they sank to just 12.7 million in 2017.

The Finance Ministry said that it expects privatizing Israel Post will succeed where government ownership to date has not.

“Making operations more efficient and entering new financial segments as well as bringing in specialized entities with expertise in these areas is expected to bring an improvement in its results totaling tens of millions of shekels a year,” the treasury said.

A strategic investor may be able to leverage assets such as the 750 post offices around the country that could be used to provide more services and as sales points. But Israel Post is constrained by the terms of its license, rules on what assets it can divest and its obligation to provide universal service.

Last April, Israel Post asked the Finance Ministry for a yearly subsidy of 70 million shekels to help pay to deliver and collect mail in outlying areas of the country.

A critical part of the privatization plan deals with the postal bank, which is an important source of revenue for Israel Post. Under a 2012 amendment to the Postal Law, the bank was supposed to be spun off from Israel Post, but it was never done because the equity capital it would need was never provided.

Under the privatization plan, some of the proceeds of the privatization will be used to provide the capital as well as to expand and improve postal services. On Monday, the treasury said it hoped spinning off the postal bank, which now provides basic payment services and little else, would enable it to expand its services and compete against other banks.

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