Those were the days. A little more than four years ago Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) offered to buy Mylan, one of its main generic pharmaceutical rivals, for $40 billion, and planned financing it half in cash and half in its own shares.
The takeover did not go ahead after Mylan refused the offer and even though Teva improved its bid, Mylan resolutely resisted. Today, the two rivals, who traded mutual insults about their business culture and the like, are each traded around a value of $10 billion. Both are suspected of fixing and inflating generic drug prices and both are mired up to their necks in problems.
It's possible that the fanciful rumors reported in the media that Warren Buffett is trying to arrange a merger between Teva and Mylan - four years after the failed hostile takeover - would not be a bad idea at all. It would not be a merger from strength but a merger out of weakness for the two fallen giants. Otherwise what options does Teva have?
In the desperate times in which Teva finds itself, desperate measures are required. Teva does not have much weaponry in its arsenal and not many measures that can be taken that are under its control, nor the kind of money it would be forced to spend on legal costs. Not in the current weak state of the US generics markets and certainly not due to its internal problems including a huge debt of nearly $30 billion , falling revenue, and a fall in a company's most important data - free cash flow.
Consequently, Teva has no choice in the short to medium term to continue what its CEO Kare Schultz began when he entered office. To cut expenditure, to streamline and to fire more employees, and to sell assets in order to carry on and survive in the hope that some offer to purchase or merger with Mylan will come along after more rounds streamlining and a strict diet.
The biggest decimation of corporate value ever in the history of the Israeli economy will be analyzed from top to bottom, including the failed deals, as the directors marched forward with their eyes closed towards the abyss together with Teva's management. It's amazing how economic psychology hits companies again and again - the same hubris shared by managers and politicians, as we have seen in recent days, and which leads to such destructive results.
This most ancient of diseases causes managers to become confused. In a company like Teva, which has no dominant shareholder and shares dispersed among the public, which has no strong board of directors, being tough on management - that confusion creates a dizzying risk and leads to dangerous gambles. Those bets have done for Teva, the board of directors was just a rubber stamp, a board of puppets, including Galia Maor, who has already resigned.
Those who thought that Kare Schultz would be the messianic savior of Teva, and the market and some of the analysts, were enthusiastic about him at the start, now understand that he is no magician and cannot be a savior of messiah.
Even the most talented CEO cannot be a savior, messiah or magician and in the short term Teva cannot be rescued from its agonies.
In the words of Shalom Hanoch's famous Israeli song, "The messiah hasn't come, he hasn't even phoned." Schultz came at great expense and a hugely inflated salary cost. He is a very expensive messiah and after he goes, he won't even phone.
Published by Globes, Israel business news - en.globes.co.il - on May 30, 2019
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