Israeli Defense Contractor Elbit to Buy State-Owned Weapons Manufacturer IMI for $523 Million

Israel agreed to sell state-owned arms manufacturer IMI (Israeli Military Industries) Systems Ltd to Elbit Systems Ltd., an Israel-based defense and homeland security manufacturer and contractor, the Israeli Ministry of Finance announced Sunday. Elbit agreed to pay $523 million (NIS 1.8 billion). The acquisition now requires the approval of Israel’s antitrust authority.

Following Sunday’s announcement, Elbit’s shares were up 6% on the Tel Aviv Stock Exchange, as of 4:30 p.m. Jerusalem time.

Elbit CEO Bezhalel Machlis. Photo: Orel Cohen

In January, Calcalist reported that Elbit has reached the final stages of negotiations for the acquisition of IMI, citing two people familiar with the deal.

IMI develops and manufactures weapon systems for land, air, and naval combat. Among IMI’s most successful developments is the Uzi submachine gun, introduced in 1950 and used worldwide. The company was established in 1933 as the first armament factory of the Jewish settlement in Palestine and became part of the Israeli Ministry of Defense upon the formation of the Israeli state in 1948. It is now headquartered in the central Israeli town of Ramat Hasharon, with additional locations in Israel, the United States, Thailand, and India.

Founded in 1966 and headquartered in the northern Israeli city Haifa, Nasdaq-listed Elbit and its subsidiaries operate in a variety of military-oriented and technological domains, including communications, aerospace, land and naval systems, surveillance and reconnaissance. Elbit employs around 12,500 people worldwide, 10,000 of them in Israel.

The Israeli government first moved to privatize IMI in 2005, but the motion wasn’t approved until 2013. A tender for IMI’s purchase was launched in 2015, with 12 companies participating, including U.S.-based multinational electronics manufacturer Flex LTD., New York City-based holding company Renco Group LLC, and Israeli private equity firm FIMI Opportunity Funds. By January 2016, Elbit was the sole contender left.

The Israeli Finance Ministry’s Accountant General Rony Hizkiyahu led the negotiations with Elbit. In 2015, the negotiations stalled when then-Accountant General Michal Abadi-Boiangiu valuated IMI at $647-706 million (NIS 2.2-2.4 billion), which Elbit countered with an offer of $441 million (NIS 1.5 billion).

According to a company report, IMI lost more than $63.5 million (NIS 216 million) in 2016, compared with $64.4 million (NIS 219 million) the year before and $704.5 (NIS 2.4 billion) in 2014.

The purchase of IMI is expected to strengthen Elbit’s position against fellow Israeli defense contractors Rafael Advanced Defense Systems Ltd. and Israel Aerospace Industries Ltd. All three are listed among the world’s 50 largest weapons manufacturers.