Investor group led by Milgam wins tender for privatization of Israel Post

The government sells Israel’s postal services firm to an investor consortium for NIS 461 million; communications minister says privatization will lead to faster and better services

Sharon Wrobel is a tech reporter for The Times of Israel.

Delivery trucks of the Israel Postal Company (Courtesy)
Delivery trucks of the Israel Postal Company (Courtesy)

A group of investors led by Milgam Ltd. and Phoenix Insurance on Sunday won the tender to buy Israel’s Postal Company for NIS 461 million ($125 million), as part of a much-sought privatization process of the financially indebted state-owned firm.

The consortium of buyers will need to take on NIS 900 million of financial backing that the government has provided and has an option to cut another 500 employees.

The privatization of Israel’s postal services comes after the firm over the past two years underwent a major reorganization and recovery plan, including workforce reduction, to save it from financial collapse. The completion of the deal still awaits regulatory and ministerial approvals.

“We will work so that the privatization is completed as soon as possible, in order to open the market to real competition,” said Communications Minister Shlomo Karhi. “I am sure that the winner will bring with him a new management, a new approach and above all a faster and better quality service for the benefit of Israeli citizens.”

The government has been seeking to privatize its state-owned postal services since at least 2018, after years of pouring funds into the company as it was suffering from a drop in profitability and cash flow amid increased competition from alternative services. Previous privatization attempts included plans for a partial sale of the postal company.

Back in July last year, the Government Companies Authority started a tender process for the Israel Post sale, which was advised by investment bank Rothschild & Co. In the final round, four private purchasing groups chose to submit bids, which were required to have a minimum equity value of NIS 500 million as a precondition for making an offer.

Israel Postal Company workers sorting packages (Courtesy)

Milgam, which is leading the investor consortium that won the tender, is a provider of services to municipalities, water corporations, government agencies, and public and private companies.

The firm’s services include operating systems for municipal billing and collections, maintenance of water and sewage infrastructure, planning and management of public parking and of national or municipal logistical projects.

“This is a step of great importance for postal services in Israel and for the Israel Postal Company, which under a private investor will be able to renew itself and prosper,” said Yuval Yaakovi, deputy director at the Government Companies Authority.

The full privatization is sought to help the postal company, which has undergone a strategic overhaul for more than a decade, to do away with its “snail mail” image — in line with other global postal firms that have been private for years.

“The success of the process is a demonstration of strength for the Israeli economy during a period of war and indicates great trust in the company, its employees and the inherent potential in our fields of operations,” said Israel Post CEO David Laron. “The entry of the Milgam Group will bring great added value to the Israel Post and…provide Israelis with advanced postal services.”

Israel’s postal service, notorious for its poor customer service and long lines, with letters arriving, if at all, with delays, has since 2022 undergone a NIS 1.7 billion recovery and financial stabilization process, and formulated a strategic and financial plan for the coming years.

As part of the recovery plan, 1,050 full-time employees or about 20% of the postal company’s workforce were being cut, and postal offices were shut mainly in big cities. As part of the privatization process, strategic goals were defined which require an investment and action plan by the new buying group to turn Israel Post into the largest e-commerce services company in Israel, and leading provider of financial solutions.

Founded in 1948 with the establishment of the State of Israel, the Israel Postal Company became a government-owned corporation in 2006. Today, it serves 38 million customers a year and has more than 1,000 service locations around the country — 400 postal branches and 650 are pickup and drop-off points — as well as 1.4 million mobile app users. The company owns 226 real estate assets, spread across Israel, valued at about NIS 639 million.

The company also provides banking services through the Postal Bank, which has about 1 million customers out of whom more than 510,000 have accounts. Overall, Israel Post has some 3,850 employees.

Following the implementation of the recovery plan, the Israel Postal Compnay, in the first quarter of 2023 generated adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of NIS 67 million and net profit of NIS 32 million for the full year, after reporting a NIS 36 million loss in 2022.

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