New York law firm Rigrodsky & Long has filed a class action lawsuit in the US District Court for the Southern District of New York against Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) for misleading investors and making false statements. The alleged misdemeanors took place between January 1 2012 and October 29 2013. The financial details of the suit were not disclosed.
The plaintiffs claim that Teva failed to disclose that there was significant internal discord between the board of directors and senior management during this period, and in particular, significant differences between the chairman Phillip Frost and CEO Jeremy Levin concerning execution of strategy, including implementation of the cost cutting program. The suit claims that consequently stock traded at artificially inflated prices.
The suit recounts that in December 2012, Levin and his management team announced a five-year cost cutting program projected to help Teva achieve annual cost savings of $1.5 billion to $2 billion by 2018. On October 10, 2013, Teva announced an acceleration of its cost cutting program under which it would lay off 5,000 workers worldwide in 2014, including about 800 employees in Israel.
On October 16, 2013, the suit continues, press reported that the planned layoffs in Israel had generated a public uproar. One member of Israel's parliament was quoted as stating that Teva's planned layoffs were "an act of cannibalism" in light of the tax breaks and subsidies that Teva has long enjoyed in Israel. On October 28, 2013, Israel's Channel 2 television quoted unnamed sources that Levin was considering resigning due to strong differences of opinion between himself and Frost concerning execution of Teva's strategy, including how to handle the planned layoffs in Israel. Among other things, Channel 2 cited a letter from certain senior executives to the Board stating that "the lack of unity among the board of directors and CEO hurts our ability to make the necessary changes," and urging the Board to "reconsider its intervention in the daily course of business that we believe has become common in recent months and prevents management from being able to manage Teva effectively."
Later that day, Levin denied that he was considering resigning because of disagreements with Frost and the Board, and Teva issued a separate statement saying that reports of differences of opinion between Levin and Frost over execution were "baseless."
Yet on October 30, 2013, Teva announced that Levin would be resigning as CEO. Frost was quoted as stating that there were differences between the board and Levin concerning execution of Teva's strategy. On the news of Levin's departure, shares in Teva declined more than 8%, closing at $37.70 per shares on October 30, 2013, on heavy trading volume of over 51 million shares.
Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2013
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