Hurvitz's headache

A large number of people, ourselves included, have been following Teva’s Wall Street ride for more than 15 years.

In fact, we have been watching the company since the end of the 1960s when (as far as we know) Teva’s president and CEO, Eli Hurvitz, carried out the first takeover of an industrial company in Israel through the stock market. Already then, Hurvitz, who was running Assia Chemical Industries in Petah Tikva, had his eye on Teva. It was then a public company owned by the Friedland family.

Hurvitz began collecting Teva shares on the stock market and in a deft move captured a large batch of shares in the company that the Industrial Development Bank was holding as collateral.

The bank put the package out to tender and Hurvitz offered the right price, causing quite a media stir in the process. He stood his ground against a hostile reaction from Teva workers’ union and had to fight hard to protect his reputation from the attacks of the family who had founded Teva and were loathe to lose it to a young man whom they sniffed had simply “married well,” (Hurvitz married the daughter of one of Teva's founders).

The controversy arose from the way he had acquired the share package held by the Industrial Development Bank, which was then managed by Moshe Sanbar, (later governor of the Bank of Israel).

All that happened back in 1969. Since then, Hurvitz led Teva with a management style worth teaching in universities. Looking back on the progress of Teva’s development, the man’s modus operandi emerges.

He cultivated excellent labor relations with the formerly hostile workers, and at the same time stood obstinately by his own decisions.

The company’s progress since Hurvitz took the helm has a regular pattern. This can be described as a two-track movement: an inside track to increase efficiency and sales and an outside track of acquisitions and mergers. Most important, perhaps, in retrospect, is Hurvitz’s focusing on the target and setting an accurate time table for the company’s activity.

Assia Chemical Industries was a large company already at the beginning of the 1970’s. Hurvitz didn’t begin from scratch. He entered a major Israeli pharmaceutical - chemical company and turned it into an international empire.

This was unprecedented in Israel, except in technology companies like Check Point, Comverse or Amdocs. But there is a significant difference between Hurvitz’s accomplishment and that of Kobi Alexander (Comverse), Gil Shwed (Check Point) or the Amdocs folks. They entered a new field that had not existed previously and grew with the entire sector. We have no intention of diminishing the achievements of these companies’ directors, but Hurvitz did something entirely different. He built an Israeli company to be a world leader in the extremely competitive generic field.

First, Hurvitz succeeded in penetrating the field and then reached a leading position in it, competing with much larger and wealthier companies than Teva. With true artistic flair he acquired companies and carried out mergers that did not hinder Teva’s progress or cause any damage along the way.

Teva arrived at Wall Street officially in September 1978, a month before the big crash, but the share was traded long before that when the company issued American Depository Receipts. In September 1987 Teva issued shares, selling the part Koor owned to the public. As far as we know, that was the first time that an Israeli company issued shares using top tier underwriters. Drexel Burnham, Lehman Brothers and Bear Stearns led the issue at $9.25 a share.

The next step was getting rid of the Histadrut’s Clalit Health Services, which had been Teva’s largest client. At the time, 50% of the company’s sales were to Clalit and during the company’s pre-IPO road show, many potential investors demanded to know how Teva intended to get out of the “Sick Fund,” as they cynically called the health fund.

The 1978 issue was one of the first steps in Hurvitz’s climb out of the Israeli swamp and the beginning of turning Teva into a leading global company. Koor, incidentally, became the senior partner following Teva’s take over of Ikapharm in Kfar Sava and Plantex in Netanya, both owned by the Histadrut concern. After the issue came the take over of Abic, a real competitor of Teva’s. The move was made possible due to the role of an old friend by the name of Israel Makov, today the most likely candidate to succeed Hurvitz at the end of his term as Teva chairman.

Since the end of the 1980s, Hurvitz has been progressing in a very controlled, slow, clever but easy to forecast fashion. He enters a certain field by acquiring a company or merging with one. The merger or acquisition turn out, at a later date, to be an extraordinary success. After entering with one foot, he builds a base in the field and then establishes himself in it, sometimes by purchasing more companies that can help him do this. More often Teva accomplishes this move on its own.

We do not recall Teva acting simultaneously in a number of fields. Everything is based on a specific progress map which Hurvitz has in his head or on a piece of paper and he advances step by step, according to this plan. Few Wall Street directors and even fewer in Israel can boast such skill in acquisitions and mergers as Hurvitz has displayed over the past 32 years.

Every acquisition or merger of Teva’s since 1987 appeared a year later as if there was never any price tag. It took Wall Street years to notice Hurvitz’s phenomenal management ability. When it finally did, it also it discovered the man also had the necessary qualifications to play on Wall Street.

“Hurvitz is a most interesting personality,” someone in New York told us. “He must be among the few who know how to navigate Wall Street like Main Street.”

Some of Teva’s reputation derives from the relationships Hurvitz developed in North America with investors and financial institutions. Here one must mention the contribution of Dan Suesskind, the veteran Chief Financial Officer or “Mr. Teva Share,” as he is nicknamed behind his back. Everyone in the milieu knows and cherishes him. Everyone knows the other directors. But Suesskind knows, as does everyone else, that Eli Hurvitz is Teva and Teva is Eli Hurvitz.

Almost all the analysts commenting on Teva are concerned with one thing only: “What will happen after Eli Hurvitz?” We dare to compare Hurvitz’s status in Teva, vis-à-vis Main Street and Wall Street, to that of Jack Walsh of General Electric.

Hurvitz will leave his successor a unique, profitable and efficient company. A company whose share has been getting a relatively high premium for years because Hurvitz made it what it is. Therefore, picking his successor next year is bound to be Hurvitz’s biggest headache due to the responsibility he bears to the shareholders.

So who will take his place? As “Teva watchers” for almost 30 years, we believe Hurvitz has a plan and all his moves point to it.

In our opinion, over the next year Teva will carry out another major merger or acquisition. We are not referring to the Australian company mentioned in rumors these days but a company of about the same size as Teva, perhaps a little smaller. The acquisition will move Teva’s main activity outside Israel and most of its workers will not be Israeli.

At this stage, Hurvitz will bring in a director from one of the giant companies in the United States or Europe to take his place. If he can pull it off, this is what we think will happen. That is the direction emerging from Hurvitz’s moves so far: turning Teva into the world’s leading global company in the generic field with a strong support in pharmaceuticals (Copaxone), biotechnology and fine chemicals.

In our opinion, moving in this direction brought Hurvitz to appoint Teva COO Israel Makov as deputy chairman. If, by the time he is due to retire, Hurvitz fails to bring about another merger and recruit a senior manager from outside, from a company such as Mark, Abbot Laboratories or Johnson & Johnson, then Makov will replace him. At first we think the replacement will be temporary, under Hurvitz’s supervision, and later Makov will serve as acting chairman.

We believe that when and if Makov is appointed acting chairman, Teva’s direction will remain the same: acquiring another large company and bringing in a CEO with a world reputation. If that were not the thrust, Hurvitz would have sold Teva long ago. And don’t tell us there are no buyers.

Why should Hurvitz appoint Makov, who is a relative novice?

First, whether Teva buys another company or not, the world outside Israel is far more important to Teva than anything that happens in Israel. Teva must continue developing globally. With all due respect to Teva’s management, not just anyone with management skills - even great management skills - will be to run this company. To protect the shareholders and them from harm, the man for the job must have international experience in negotiations. He must be someone known on Wall Street and who can represent Teva to the world, someone as unlike an Israeli director and most like an American one as possible.

Finally, Hurvitz will look for someone who will continue in the exact same direction he would have gone, had he the time.

In our opinion, Makov is that man. Makov will also win the board of directors’ support.

Incidentally, we mentioned earlier that Makov is the man who brought Abic to Teva. He was also the man who founded and managed InterPharm, then Yakhin Hakal and Gottex. Many argue that Makov never managed to prove he had real management skills and they may be right. But then, he never had a mentor like the one he’s had in recent years.

This, then, is our opinion and since you know us and know that we only deal in gossip, then this is also merely gossip with no bearing on reality. Then again, maybe it has. Who knows? By the way, we have been holding the share since the 1978 issue and haven’t gone wrong since. So we’re entitled to gossip a little, no?

The above recommendations were made by a person/s working in the investment industry, who may hold positions in securities mentioned in the column. This column should not be taken as advice to buy, sell or continue to hold any securities, and anyone acting on the advice of this column does so at his or her own risk.

Published by Israel's Business Arena on August 7, 2001.