Citi: Finding new CEO will be hard for Teva

Analyst Liav Abraham maintains her "Buy" recommendation, but says boardroom frictions pose problems.

"A change in strategy, or just its implementation?" asks Citi Research analyst Liav Abraham, following the firing of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) president and CEO Jeremy Levin on Wednesday. Just a week after Abraham initiated coverage of Teva with a "Buy" recommendation and target price of $47, she has not changed her recommendation, but warns that the change at the top is a "negative development for unlocking value."

"While reports of tension between Jeremy Levin and Tevas board of directors have been rife in the Israeli press over the past few days, we saw the probability of Dr. Levins departure as a low likelihood scenario, given he was brought to the company as an agent of change," says Abraham. "Todays news of Dr. Levins resignation does not send a positive signal to the market regarding the implementation of the companys strategy for generating long-term organic growth."

Levin's departure, says Abraham, "raises questions regarding Tevas ability to be run under the current corporate governance construct," and raises questions about the ability of Teva's management to implement the strategy that Levin led. She adds, "The well documented friction between Dr. Levin and Tevas board will likely increase the boards difficulty in finding a new CEO, in our view, given the questions raised regarding the CEO to operate freely in the implementation of the companys strategy."

On Wednesday, following the firing of Levin, Teva chairman Phillip Frost held a conference call with analysts and investors, in which the mood was tense at time. Although Frost said that he was "excited" at the opportunities facing Teva, and emphasized that the company would implement the strategy that Levin led, some analysts were tough on him, and even disrespectful.

"This looks like a dysfunctional company," said one analyst. "What are you so excited about?" asked another, half seriously and half bitingly. At one point during the conference call, Frost confronted an analyst who was apparently angered by Frost's comment that he would buy Teva shares, despite the drop in the share price.

"I can show you friends who bought the share and are very unhappy," said the analyst. Frost replied, "You dont have to show me; I can show you friends who bought the share a few weeks ago and are pleased." At this point, the analyst, angered at the response, thanked Frost for his time, and hung up.

Published by Globes [online], Israel business news - www.globes-online.com - on October 31, 2013

Copyright of Globes Publisher Itonut (1983) Ltd. 2013

 
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