Landa: It'll be tough for Teva to find new CEO

Benny Landa Photo: Eyal Yizhar
Benny Landa Photo: Eyal Yizhar

Teva activist shareholder Benny Landa says Teva's board of directors should resign.

Since 2014, successful digital printing entrepreneur Benny Landa has become the standard bearer for criticism by Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) shareholders of its board of directors. While many people have criticized the company's CEOs for the company's strategy and the acquisitions it has made, only a few have directed their fire at the board of directors that appointed these CEOs. He is now calling on the board to resign and says that in the current circumstances it will be tough to find a new CEO. 

In recent years, Landa has become an activist shareholder in Teva, although he disavows the title. As such, he was involved at several of the company's significant decision points. Yesterday, Landa talked a little about what goes on behind the scenes at the company. He was speaking before students for the course for training senior directors in the Lahav development program in a discussion led by Prof. Yossi Gross.

"What have I got to do with Teva? Nothing," Landa said at the beginning of his remarks. "Five or six years ago, I listened to a Teva podcast open to everyone, at which then-Teva CEO Dr. Jeremy Levin and president Global R&D and CSO Dr. Michael Hayden talked about the company's future, and it was riveting. To me, the strategy seemed excellent. I understood nothing about pharma, but I knew that Teva was special. It's the only global company Israel has - the only one that's present everywhere. I invested in it as a patriot. I didn't buy many shares, but enough to give me a voice," Landa said, commenting on his purchase of shares in 2013.

Landa admitted that he started learning about Teva's history in depth only after buying the shares. "I read about the company's unsuccessful acquisitions (this refers mainly to Teva's $6.8 billion acquisition of Cephalon, a cancer treatment company, G.W.), and I wondered how a company like Teva could make such mistakes. I read the background of the directors, and I realized that they had a problem in assessing a decision like this, because they don't come from the pharma industry. I went to a shareholders' meeting, because that's what my investment enables me to do, and I said that there were too many directors and two few of them with the right background. Then-chairman Philip Frost told me, "We'll consider what you said," Landa says.

"I got to know Levin at that meeting, and when an article appeared in the press saying that he was resigning, followed by a report in which he denied it, I called him to say that I was glad it was only a rumor. He told me, 'They're probably going to fire me tomorrow, and I don't even know why.' I wrote to several directors I knew, and argued that it was a hasty and extreme step, but it didn't help. He was fired, not because he failed, and not because the strategy was wrong, but as the directors explained to me, he didn't get along with some of them - differences in style.

"What major public company fires a CEO overnight because of differences in style? You make a deal with him for six months or nine months, and quietly look for someone else. But Teva didn't do that."

"The Teva board is holding on to the status quo"

Landa says that at this stage, he started reading the board of directors' regulations. "I realized that this was a group of old friends, in which each of them supported the others - the board of directors is holding on to the status quo," Landa declares. "The board is appointed for three years, and there's practically no way to fire them. I tried again to meet with the directors, but I was told that I was hostile, and that I could only meet and talk with director Amir Elstein."

Landa began meeting with the institutions that had invested in the company. "I was stunned at the response," he says. "They told me, 'We're very dissatisfied with management and the board of directors. There's a lack of credibility in the entire financial sphere.' I got their agreement, and I proposed a change in the rules and the appointment of a CEO from the pharma industry to Frost. I took Adv. Shirin Herzog, the brains behind the proposal we put together, with me. They told me again, 'It will be all right. We'll appoint Elstein chairman and take a CEO from the pharma industry. It will be all right'."

As we know, however, that is not what happened. "One day, Elstein calls me and says, 'Come meet Erez Vigodman. He's the next CEO.' I told him, 'Amir, is this what you found? The placement company looked all over the world, and finally found the right CEO right under your noses, another one of your group of friends?' But I told myself, 'They've already decided,' and Erez may not have been from the industry, but he was strong in other things, so let's at least replace the board of directors, so that it will be strong in pharma, and change the rules, because it's not proper corporate governance'."

At the same time, Landa relates, he got a letter from Frost that looked like total surrender. "He wrote, 'Certainly we'll replace the board of directors.' I said, 'If that's the case, you won't hear from me anymore.' But then I got the list, and I fell off my chair. It was exactly the same list proposed before."

Landa says that he prepared with several investment institutions for a proxy war. "The institutions were so well coordinated with me and angry. We said, 'We'll give Teva a message.' There was a big reconciliation again, and they told us that they'd reduce the board, appoint directors from the industry, for real this time," he says.

"Erez Vigodman stuck to generics"

Landa says that he met with Vigodman several times, and even though he did not understand pharma himself, he proposed concentrating on innovative products, not generic ones, because they were more suitable to Israel's advantages. "Teva had years to prepare for the day on which the Copaxone patent expired, but the board of directors, that closed circle, dug its heels in, replaced four directors during that time, and there was no continuity of strategy. Vigodman stuck to generics, because that's where Teva had its heyday, as did Makhteshim Agan (later Adama Agricultural Solutions Ltd. (TASE: ADAMA)), where Vigodman came from."

Although Landa said in the past that Vigodman could have been a good CEO, had he been appointed by directors from the pharma industry, in retrospect, he has severe criticism for the decisions that Vigodman made during his term - for example, the decision to acquire Mylan N.V. (Nasdaq: MYL; TASE: MYL) in a hostile takeover, which was not implemented.

"A hostile takeover in the pharma industry can't succeed," Landa argues. "What you are acquiring is the people and the management. Why didn't the board of directors ask this question? And when that didn't work, they agreed with another company within two weeks. When I buy something small for tens of millions of dollars, I spend months on due diligence. How many weeks did it take for Actavis? How could this be? It looks like they relied on Siggi (Global Generic Medicines Group president and CEO Sigurdur Olafsson) because he came from Actavis. But maybe that was the reason why he wasn't objective.

"And what about Rimsa (the Mexican company acquired for $2.3 billion, in which serious regulatory irregularities were discovered, G.W.)? When you buy a developing world company, you have to do a real forensic due diligence. There are always less orderly things there. I told Vigodman, 'You have to be a leader, to provide a vision.' In every talk with analysts, he spoke about the next quarter."

According to Landa, these decisions were among the reasons why Vigodman found himself outside Teva. "And what now? The board fired him, and appointed a temporary CEO - one of their own again," Landa complains. "And the board is the same. So something's very rotten in the state of Denmark." He points out that a lawsuit filed against Teva alleged that the Actavis acquisition agreement contained several clauses protecting the members of the Teva board of directors. For example, one clause bars Allergan from selling its Teva shares to an activist investor. Another enables the board to exercise the voting rights for Allergan's Teva shares. According to the lawsuit, these clauses constitute a personal interest of the board in the deal. Landa has this to say about the matter: "I don't know how much was paid in order to insert these clauses into the deal." Teva said in response, "These allegations are being heard in legal proceedings, and Teva intends to respond to them fully in that framework."

"Eli Hurvitz would have turned over in his grave"

What should happen now? "The entire board of directors should go home," Landa declares. "A completely new board should be appointed from the industry. The best people should be brought, and they should be paid a salary that will make any Israeli green with envy, because we may be a little narrow-minded, but it's small change, compared with the company's expenses. And the CEO? The problem is that it will be very difficult to find someone for this slot, because it comes with a built-in guillotine. It has to be a CEO with no ego, because the company has to be split."

The idea of splitting Teva into an innovative company and a generics company has been raised quite a bit, mainly by US analysts. Landa says, "Teva can be a holding company of two businesses, generics and innovative, just like Novartis owns all of Sandoz, but Sandoz is managed as an independent business. The main thing is for the company to be completely separate, and that innovative development is not just a division whose budget can be taken away when there's not enough for regular business."

In response to questions from the students at the course, Landa was asked, "What would Teva founder Eli Hurvitz have said about splitting the company, and would his son, Chaim Hurvitz, make a good CEO?" Landa answered, "I have no response about Chaim Hurvitz. I didn't know Eli Hurvitz well, but from what I did know, he would have turned over in his grave, had he seen what's happening in the company. I believe he would have seen the logic in a split, because he would have realized that it's 2017."

Another student asked, "Who can actually lead the replacement of the board of directors?" Landa says, "The current chairman, Sol Barer. I don't know him. I support him only because of his record, but I hope he'll do the right thing. Unfortunately, I see no signs right now that the board is about to be replaced, but I can say one thing: if there's another proxy war, it won't end with a 70-30 result. The investment institutions want to back me now, and it's not that I want to do something, but I understand that they've lost confidence, and you can't lose confidence in Teva without losing confidence in Israel"

Asked by a student whether he wanted to be CEO of Teva, Landa answered, "On the contrary; the company needs someone who's not like me. I don't understand pharma."

Published by Globes [online], Israel Business News - - on March 14, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Benny Landa Photo: Eyal Yizhar
Benny Landa Photo: Eyal Yizhar
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