What happened to Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) is a traumatic event for the company's employees and shareholders and the Israeli economy. As could have been expected, people are looking for someone to blame for what happened, and it is not difficult to accuse the company's management and board of directors for the mistakes made. The fact that when the unfortunate deal was made to acquire Actavis, it was lauded by most of the analysts, who sent the company's share soaring to a peak, does not exempt Teva's board of directors from responsibility for the mistake that was made. There is reason, however, to justify a cautious attitude towards the suggestions of the same experts about how the crisis should be handled henceforth.
The proposals being made in the Knesset and the media to punish the company in various ways are perhaps understandable, given the failures that were revealed, but the company's chances of recovering must not be spoiled. The need to fire a large number of employees and cut unprofitable activity is unpreventable, so that Teva can avoid becoming insolvent. Even after the necessary layoffs, Teva will still be the employer of thousands of workers in Israel. If, heaven forbid, the company's recovery plan fails, many thousands of employees will lose their jobs.
One of the arguments of those demanding punishment for Teva is that the company received many benefits from the state and gave nothing in return. This is a wicked argument. Teva contributed to the Israeli economy for decades as a leading exporter and large-scale employer. The tax benefits given in accordance with the law were designed to encourage Teva to invest in Israel, as it did, at a time when tempting conditions were offered to it in other countries.
What is arousing justified anger at Teva is the salaries of its executives in recent years. I believed that this was excessive even in the good days of high profits. It is absolutely unacceptable when times are bad. It could be that those receiving these benefits should be made to return what they received in the past two years to the company. The package of benefits promised to the new CEO has also been severely criticized. The critics should realize that the market for pharmaceutical executives with the qualifications and experience to manage companies like Teva in its current plight is limited and international. An executive leaving a good management position in order to take upon himself or herself the task of rescuing Teva justifiably expects the same appropriate remuneration prevailing in the international market.
Some said that given Teva's management crisis, the best thing to do is to sell the company to a major international corporation, and get rid of the burden of its failed Israeli management. Teva is a public company, most of whose shares are held by foreign investment institutions. There is no guarantee that a takeover by a foreign corporation will not liquidate Teva's business in Israel. If the sole consideration in who controls the company is the cost of production, there is a risk that the company's sites in Israel will be affected.
Even after the massive sale of shares following the publication of Teva's disappointing results, large respectable investment institutions still hold shares in Teva. They expect the company to make an effort to return to profitable activity, which will benefit not only the shareholders, but also the company's employees. Rehabilitation of Teva is an interest of the Israeli economy. It is to be hoped that Israel does not put obstacles in its way.
Meir Heth is a Teva shareholder and was formerly chairperson of the company.
Published by Globes [online], Israel Business News - www.globes-online.com - on December 3, 2017
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