Idea of merging IAI, Rafael, IMI gains momentum

With the lack of progress in privatization and IPO of IMI, and rising tensions between IMI and Finance Ministry, the idea gets serious attention.

By YUVAL AZULAI
rafael 248.88 (photo credit: Courtesy)
rafael 248.88
(photo credit: Courtesy)
“The troubles at Israel Military Industries Ltd. aren’t the issue. We have an overview, which says that sooner or later, all government-owned defense companies will be consolidated into a single large, strong company, which even has a name: Israel Defense Industries,” an Israel Aerospace Industries Ltd. executive has told Globes. He made his remarks in response to reports that the Finance Ministry and the Defense Ministry are considering merging IMI with either IAI or Rafael Advanced Defense Systems Ltd., both government-owned companies.
“This is a global trend,” he said. “It happened to the government-owned defense industries in Europe, it happened in the US, and it will eventually happen in Israel.”
Talk about merging IMI with one of the government defense companies has been raised before, but nothing ever came of it. Now, with the lack of progress in the privatization and IPO of IMI, and the rising tensions between IMI and the Finance Ministry, the idea of a merger has been revived, and it is even starting to get serious attention.
IAI and Rafael want IMI as a division under their control. Both companies believe they are the best for the job. IAI believes acquiring IMI will create synergy.
“We make the Arrow missile, and IMI makes the missile’s engine,” the IAI executive said. “Some of its facilities are only a few kilometers from ours. Such a combination is natural and logical, and we would incorporate IMI quickly. Moreover, IAI knows how to save financially troubled companies and has accumulated extensive experience in this.”
Sources at Rafael say that there is a broad common denominator with IMI, and they also use the word “synergy.” One source said the discussions on the issue were “more serious than before. All that remains to do is to decide.”
Rafael, however, is in no hurry to be part of a consolidated government defense company that will operate alongside the industry’s dominant private company, Elbit Systems Ltd.
“To the best of our knowledge, there is no acute discussion about a merger of all the government defense companies at this time,” a source at Rafael said.
IAI has a vision of a new government defense company under its leadership that could more effectively compete in foreign markets. IAI believes such a company could develop and build unmanned aerial vehicles, upgrade combat jets, manufacture executive jets, provide state-of-the-art electronic warfare pods, build advanced missiles, and manufacture armor kits for tanks and other vehicles, guided and precision artillery munitions, innovative radar systems, and missile and rocket interception systems.
“Currently, IAI is Israel’s largest government defense company and the 30th largest defense company in the world,” the IAI executive said. “Consolidation of all the government defense companies would create the world’s 20th largest defense company, more or less. This would facilitate bidding in large tenders in emerging markets, offer larger guarantees and become a player in the major leagues. However, ultimately all of us – IAI, Rafael and IMI – have the same owner, which is the State of Israel. The owner has to make the decision, because the time has come.”