Kare Schultz became CEO of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) only three months ago, but has provided an impressive set of changes and developments during this time. Schultz's main task in the short and medium term is to better Teva's ability to service its big debt (which fell from $34.7 billion at the end of the third quarter to $32.5 billion at the end of 2017).
Most of this debt was taken in 2016 to finance the acquisition of Actavis, the biggest acquisition in Teva's history, which in retrospect was far less successful than Teva anticipated.
Shortly after taking up his position, Schultz announced an aggressive streamlining plan, including laying off 14,000 employees, a quarter of Teva's workforce. The layoffs included 1,750 in Israel. Teva is also switching to a different organizational structure.
While in the past Teva was managed as two separate groups - one for generic drugs and one for original drugs, Schultz announced the consolidation of the company into a single commercial organization that will operate in three geographic regions: North America, Europe, and growing markets.
Several senior executives at Teva resigned as a result of the change. At a conference early this year, Schultz explained that in Teva's previous separated organization, very few people in the company saw the general picture. Activity will now be simplified - everyone will be able to see the entire company's profit margins and cash flow.
The impression is that Schultz was not shocked by the downgrading of Teva's debt (Moody's lowered its rating to a junk-bond level several weeks ago, and S&P is also considering a downgrade).
Schultz has declared more than once that Teva will not raise capital through a share offering, and meanwhile, the company has submitted a prospectus for a $5 billion bond issue for the purpose of repaying existing debt through new debt payable in the more distant future.
At the same time, Teva again revised its agreements with its creditors. Even before Schultz became CEO, the company revised its debt covenants, and is now doing so again. Under the new formula, the banks will allow Teva to have a higher leverage ratio (debt to EBITDA) than previously permitted: 5.9 instead of 5 at the end of 2018 and 5 instead of 4.5 at the end of 2019. This will provide Teva with a slightly more comfortable degree of financial flexibility.
Other events in recent days are also easing the debt pressure on Teva. The company has reached a compromise agreement with Allergan, the company that sold Actavis to Teva in 2016, in which Allergan will pay Teva $700 million. The sale of Teva's women's health business, which has been completed, will also give Teva another $700 million.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 8, 2018
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