Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) and the global pharmaceutical market are undergoing a stormy period, and the storm reached a peak yesterday with Mylan N.V.'s brusque rejection of Teva's $41 billion acquisition bid. Former Teva director Chaim Hurvitz, son of Eli Hurvitz, the late Teva chairman and CEO, represents the Hurvitz family, which owns 1% of Teva. He responded today for the first time to the unsuccessful deal, and did not spare any words.
"Mylan was always a bitter competitor of Teva, and there was bad blood between the companies going back to my father's period, among other things because of chairman Robert Coury. The competition was in business, but there was also a very emotional and personal, possibly even nationalistic aspect (Coury is of Lebanese origin, G.W.).
"Everyone who knows Coury could guess what the next move would be. This is Coury by the book - a very vitriolic person with a lot to lose. He would lose the private planes, cars, and everything else. We all expected this part. The Mylan board of directors is composed half of management, which is in effect subordinate to him. The shareholders have no real representation. The real war will be for the shareholders."
According to Hurvitz, the story is complicated, because some of the shareholders in Mylan are also shareholders in Perrigo Company (NYSE:PRGO; TASE:PRGO), and their interests are therefore tangled: Mylan has made an attractive bid to acquire Perrigo. Perrigo has so far rejected the offer, but Mylan is likely to improve it. An acquisition of Mylan by Teva would prevent the Perrigo acquisition, and those holding shares in the two companies will have to consider which scenario they prefer. "I think the deal is excellent for Mylan, but I wouldn't bet on an 80-90% chance that it would succeed. Nevertheless, it’s an opportunity to try," Hurvitz commented.
"The question will be whether Mylan's shareholders have the patience for a deal that will be partly in shares, a deal in which they don't get everything in cash immediately, but which has a pretty good chance of an upside as a result of the synergy between the companies. I think that historically, Teva's shareholders have demonstrated their patience, but I don't know whether Mylan's shareholders are the same way."
An international pharmaceutical industry source told "Globes" today that Coury's reference in his letter to the supposedly problematic organizational culture at Teva, Israel's largest company, is not helping Teva's standing in the global pharmaceutical industry or Israel's general business image, even though everyone is aware of Coury's way of speaking. Hurvitz is not upset. "This doesn't reflect the market's opinion about Teva," he says about Coury's letter. "These are Coury's words. That's the man. Everyone who knows him knows that he's uncouth, with an enormous ego. It's a kind of game. They suffer a little from a Napoleon complex. Mylan still earns a fifth of what Teva does, and it looks to me like they're a little confused."
"Globes": Could Mylan have been approached directly, instead of through a hostile takeover, as Coury asserted in his letter?
Hurvitz: "No, because of the history between the two companies, and because the board of directors is hostile to a deal of this type."
Back to Teva's origins
As a shareholder, Hurvitz backs the deal. "I think that it's a return to the origins and to spheres in which Teva was always strong. Mylan is an excellent company: stable, clear, with both feet on the ground, and the combination is logical. You could argue about whether or not the price is expensive, and it's certainly the most I'd want to pay for Mylan.
"I've known them well for many years, and my impression is that while Teva is very strong in its marketing capability, and has more of a commercial edge to it, Mylan is very successful in R&D and production."
The emphasis is changing from innovation to generics
"Not long ago, we acquired Auspex Pharmaceuticals, an innovative company with technology that can produce 50-60 leads to new products, of which 5-6 can be expected to reach the market. We'll also go on looking at such companies. Where Mylan is concerned, we don't know yet exactly what innovative products they've got, but their capabilities can only be a pleasant surprise, including technologies that can help in more successful development of innovative products from other sources."
A few years ago, it was commonly said that the generic market wasn't what it had once been, and it could therefore not be used as a reliable basis.
"Competition in the generic sector has intensified, that's true, but this synergy can help us compete in price with all the small and medium-sized competitors, whose price is their sole advantage. Smaller Far Eastern generic companies compete over price thanks to their cheap labor, and we can do it by using better technologies."
Isn't this deal too big for Teva?
"I don't think so. Today, raising $20 billion for a deal like this is nothing for Teva. They'll stand in line to give it to us. It could even have been $30 billion. The two companies have property and assets, so the banks are getting the best guarantees there are."
What can you say to a Mylan shareholder who prefers the Perrigo deal?
"If Mylan acquires Perrigo, in my opinion it will be selling its soul. I don't see why Perrigo isn't jumping at this price. Only recently, results were published showing that Perrigo made a profit of about $1 billion for the second straight year, meaning that by a crude calculation, they'll be getting 30 times the company's annual profit. Who will give you something like that? In my opinion, such an acquisition will not make Mylan stronger. Sometimes, however, business is not the only consideration, and unlike my colleagues, I don't think Perrigo's refusal is a bargaining ploy. They meant it."
Could the acquisition of another huge generic company in the US further dilute Teva's Israeli identity?
"Not at all. Don't get confused; this is an acquisition, not a merger, and Teva will assimilate people from Mylan's management only if it wants to. The center will remain here."
Published by Globes [online], Israel business news - www.globes-online.com - on April 28, 2015
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