"It is impossible to see an end to the crisis at Israel Military Industries Ltd. (IMI), and that's sad. It will continue through the coming year, when the election season will begin, and no fundamental decision will be made. In any case, the attempt for a merger with Rafael Advanced Defense Systems Ltd. is a mistake. Rafael isn't ready to merge with IMI; it's taken on too big a nut - and is choking," ImageSat International NV chairman David Arzi told "Globes".
ImageSat is jointly owned by Israel Aerospace Industries Ltd. (IAI) (TASE: ARSP.B1) and Elbit Systems Ltd. (Nasdaq: ESLT; TASE: ESLT).
Arzi continued, "If someone wanted a real solution to the problem of IMI through a merger with another company, he would have found it through a merger with IAI. Rafael is a kind of start-up which is now moving from the set-up stage to the formalization stage. It needs at least ten years to accumulate the shareholders' equity and reserves that IAI already has.
"That is why IAI could more effectively lead a merger without making the demands that Rafael is making. If IAI had been allowed to lead the merger, it would dismantle IMI and scatter its units among IAI's divisions with synergetic operations. Some parts of IMI could have gone to IAI subsidiary Elta Systems."
Both IAI and Elbit Systems wanted to take over IMI or large parts of it, along with other defense companies, such as Kibbutz Plasan Sasa-owned Plasan Industries Ltd. Earlier this year, a joint Ministry of Finance-Ministry of Defense team decided to merge government owned IMI with government owned Rafael, and to swear that, this time, the deal was serious. However, in the months since, nothing has happened. Mutual suspicions and Rafael's deep worries about IMI's financial condition and liabilities, and the lack of clarity about the government's willingness to provide the money needed to close IMI's hole, as well as the issue of privatization, have stymied the merger.
Meanwhile, IMI is paying NIS 60 million a month in salaries to its 3,000 workers from Ministry of Defense advances on future company earnings. The Ministry of Defense says that, as part of the merger agreement, this burden should have been shifted to the Ministry of Finance and Rafael, in equal shares, at the end of June. At the same time, IMI's information room and details about its finances, liabilities, orders backlog, and so on, would be made available to Rafael. The Ministry of Defense claims that although the information room was ready in time, the Government Companies Authority has not opened it. Moreover, the Government Companies Authority and the Histadrut (General Federation of Labor in Israel) have reopened the issue of IMI's privatization.
Meanwhile, sources claim that Rafael has made exorbitant financial demands of the Ministry of Finance to guarantee its financial stability following the merger with IMI. Rafael denies the charges, saying that it has not asked for a dime. A Rafael source said, "How can we ask for something, when we don’t know what to ask for? The information room has not been opened. We need to know IMI's financial condition, see the holes and traps that IMI knows about. We don’t want to step on a mine. Afterwards, we may ask for NIS 1 billion, or NIS 20 billion, or nothing. We want to know what we're getting into. We're a responsible company."
Published by Globes [online], Israel business news - www.globes-online.com - on July 13, 2011
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