IMI-Rafael Merger Again Being Encouraged by Ministry of Defense

Claim merger would "open up resources" currently spent on competition

The Defense Ministry is pushing to merge Israel Military Industries (IMI) and Rafael Armament Development Authority.

"A merger between IMI and Rafael would allow raising the value of IMI assets in order to maximize its future sale value, in addition to maximizing the security benefits," defense sources said this week. No clarifications were made as to whether the intent is to privatize IMI.

In response to assessments within the government that Defense Ministry Director General Gaby Ashkenazi opposed Defense Minister Amir Peretz's proposal to merge the two companies, it was commented that the proposal was made with full backing of the ministry. The ministry apparently conducted an economic feasibility study before making the proposal.

The ministry told TheMarker that the arguments were not backed up by numbers, and therefore sounded more like slogans. The central claim is that the merger would open up resources currently spent on competition between the companies. Economists within the ministry believe the freed-up resources would be channeled into "research and development, innovation and growth at a savings to taxpayers."

The scenario was presented, the Defense Ministry claims, because IMI's situation deteriorated after the government decided to privatize it in August 2005. "In light of the fact that the government's decision was not realized, and it's impossible to continue with the situation the way it is, the Defense Ministry studied options that it had already examined before, such as a recovery plan as well as an additional plan to merge IMI with Rafael," the ministry commented.

Ministry officials came to the conclusion that in light of past experience, the problems rooted in the company require a structural change, and not a recovery plan. The cost of three previous recovery plans - in 1992, 1995 and 2003 - totalled billions of shekels, but they failed to guarantee the company's long-term health.

Merging IMI and Rafael was considered back in the 1960?s, the ministry noted. "The defense establishment understood that the connection between Rafael's research and development capabilities and IMI's production leverages the business and technological potential of both companies in the best way," the ministry added.