File photo of an Israeli settler armed with an Uzi submachine gun.Mati/The Associated Press
Israel is putting the developer of the Uzi submachine gun up for sale, kick-starting a broader privatization program it forecasts will raise about 15 billion shekels ($3.75-billion) over the next three years.
Israel Military Industries Ltd., or IMI, said in January that it will start seeking investors within the next two months. Israel's Government Companies Authority has said it expects the sale to be completed by 2016, with the arms manufacturer estimated to fetch more than $500-million.
The IMI sale is the first in a plan to privatize a dozen government-owned companies, including corporations that manage Israel's ports, railroads, postal service, electric and water utilities, and the state's three biggest defense contractors. The Finance Ministry has said the sale will help pay down government debt, improve efficiency, and boost the local stock market by creating new public companies.
If IMI, which span off the division that developed and produced the Uzi a decade ago, or other government-owned companies end up as publicly traded entities, that "could be a way of reviving Israel's moribund capital markets," said Terence Klingman, head of research at Psagot Investment House in Tel Aviv.
Trading volumes on the Tel Aviv Stock Exchange tumbled after MSCI raised it to developed status in 2010. The average daily volume of shares and convertibles in 2014 was 1.2 billion shekels ($301-million), compared with a record 2.5 billion shekels in 2007, according to bourse data.
Initial public offerings have also declined, with six companies going public in 2014, including one dual-listed company, according to TASE data. The most IPOs in one year was 62 in 2007.
Potential buyers of IMI include Israeli defence contractor Elbit Systems Ltd. "We are interested in acquiring IMI, and we will see how the process develops," company spokeswoman Dalia Rosen said.
"IMI would fit well, would have very good synergy with Elbit," Psagot analyst Ilanit Sherf by phone.
IMI produces a variety of military products and services, including armored vehicles and personal armor protection, missiles, tank and artillery shells, small caliber ammunition, integrated weapons systems, and anti-terror training programs. The company said it has trimmed its workforce to 2,300 and has agreed to relocate its main manufacturing plant from the heavily populated suburbs of Tel Aviv to a new facility in the southern Negev region by 2022.
"In 2016, IMI will operate as a privately owned business that will focus on the core areas of technological leadership the company has adapted itself to in a dynamic and changing market," the firm's chairman, Udi Adam, said.
Israel's March 17 snap election could complicate IMI's sale because populist campaign season sentiment "has become a bit of a headwind" against privatization efforts, Klingman said.
In their campaigning, "none of the big parties are supporting privatization, and you don't want to buy a company and find out the government has changed its mind about the sale," he said. That could have a negative effect on the price IMI may fetch, he added.
Government Companies Authority Chairman Ori Yogev said last month that while odds were small that the elections would derail the privatization plan, they could delay its timetable.
Ben-Zion Zilberfarb, a former Finance Ministry director– general, said he didn't think the balloting would hurt IMI's prospects for being sold.
"A new government might rethink privatization of a public service like the post office," said Ben-Zion Zilberfarb, a former Finance Ministry director-general and now an economics professor at Bar-Ilan University outside Tel Aviv. "But it is less likely there is a danger the process will be stopped with a company like IMI, where an agreement was reached with the workers on the sale before it got under way."
Executives from U.S.-based Stifel Bank & Trust, selected together with Bank Leumi Le-Israel Ltd. to oversee the sale, visited IMI's Ramat Hasharon facilities on Jan. 7 to start getting things in motion.
"There are U.S. and Israeli companies that will be interested in IMI because it has a good reputation and line of products," said Brad Curran, an aerospace and defense industry analyst at consulting firm Frost & Sullivan. "It may also attract interest from companies in countries like Japan, South Korea and Brazil that are looking to increase their military capabilities and not be so dependent on the U.S."