IMI Bribery Probe in India Puts Rafael Merger in Limbo

Government approval for Israel Military Industries' proposed merger with Rafael Advanced Defense Systems has been put on hold following an investigation into bribery allegations in India. According to reports in the foreign press, IMI is among six companies suspected of bribing senior Indian officials to win government tenders and now facing the prospect of being blacklisted. IMI denied the allegations.

While defense industry insiders surmise that the investigation, which has been underway for about a year, could torpedo the merger, government officials seem determined to see it through. According to government sources, the Defense Ministry's legal advisor Ahaz Ben-Ari traveled to India last week to assess the implications of the investigation against IMI on the company's future and plans to merge it with Rafael.

Ahaz Ben-Ari
Eyal Toueg

A joint team from the defense and finance ministries recommended merging IMI and Rafael to help extricate IMI from its financial problems. The government was scheduled to decide on the merger two weeks ago, but Rafael requested that talks be frozen until IMI's situation vis-a-vis India can be clarified. The government acceded to the request, allowing a one-month extension to examine the possible repercussions of IMI becoming blacklisted on Rafael sales to India.

The government sources said that Rafael's directors have been worried by Indian press reports on the affair and are concerned about being included in the blacklist if the merger goes through. Nonetheless, the sources expected the merger to be carried out since Rafael agreed to pay about NIS 1 billion to cover retirement costs for about 1,000 IMI employees.

The defense industry insiders said that the possible blacklisting of IMI is a critical factor influencing the merger. "India is a very important customer for the defense industry, and being included on a blacklist could kill chances for a supplier to that country for many years, if not forever," they said.

They added that the merger awaits consideration of other issues, aside from IMI's status in India, including estimates of orders from the Israel Defense Forces and whether the merger could ruin Rafael financially.

"The company develops and manufactures defense technologies and weapons systems for the IDF and foreign armies," responded IMI's spokesman. "These systems were purchased by the Indian army after successfully undergoing a series of tests and trials that proved their reliability. Contact between IMI and India was conducted according to purchasing standards and in accordance with the law. IMI is cooperating with Indian authorities and two weeks ago sent its response to all their questions. With that, IMI expects a decision to be made closing the matter."

Rafael refused to make any comment on the subject.