Privatization of Israel Post Poised for Approval

The two-stage plan calls for a strategic investor to buy 20%, with another 20% floated on the stock market

File photo: An Israeli post office.
Ofer Vaknin

The ministerial privatization committee is expected to approve Sunday a plan to begin privatizing the Israeli postal service by selling a 20% stake to a strategic investor and another 20% in an initial public offering.

Treasury sources told TheMarker they believed an IPO of Israel Post could value the company at between 1 billion and 1.5 billion shekels ($270 million and $410 million). That, however, would be a generous valuation given that Israel Post’s profits plunged 75% last year to just 12.7 million shekels.

The privatization is aimed at turning around a lumbering, inefficient organization that has seen its core business of delivering mail decline over the past two decades.

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While the surge in online buying by Israelis in recent years has brought a big increase in package deliveries, Israel Post has been overwhelmed by the phenomenon, and its reputation for on-time delivery of undamaged goods – or delivery at all – is poor. A 2015 plan to improve service and become more efficient has yielded only partial results.

In a test by TheMarker last year, 15 people each ordered three products from five of the overseas e-commerce sites most popular with Israelis. Of the 15 items ordered, one never arrived and was lost in the system. The average waiting time from order to delivery was 26 days.

Under the terms of the privation plan drawn up by the Government Corporations Authority, the strategic stake would be sold to the highest bidder in an auction and the IPO would follow two years later.

Despite the stake of only 20%, the strategic investor would have the right to appoint the CEO as well as the directors who chair the board’s finance and human resources committees. If the investor sells the shares anytime over the first seven years, the special rights can’t be passed on.

The privation plan has the backing of Communications Minister Ayoub Kara, treasury Director General Shai Babad and the Histadrut labor federation. Israel Post will use some of the money to fund a plan to spin off the postal bank and to expand the services offered by the bank and the postal service generally.

The plan still needs the approval of the Knesset Finance Committee as well as the privatization committee.

A strategic investor may be able to leverage assets like the 750 post offices around the country that could be used as sales points and to provide more services. 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.

In April, Israel Post asked the Finance Ministry for an annual subsidy of 70 million shekels to help deliver and collect mail in outlying areas of the country.