Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) today notified its employees that it was suspending the construction of the new company headquarters in Ra'anana. Teva acting CEO Yitzhak Peterburg said that the company was considering how to continue the project at lower cost.
"Globes" recently questioned the fate of the project, the projected cost of which amounted to hundreds of millions of dollars, at a time when the company's debt burden is heavy and its revenues have been reduced.
The company employees today received a letter from the company's internal communications team stating, "As you know, our supreme priority now is achieving Teva's business targets for 2017 in order to strengthen the company and put it back on the road to steady growth. We are conducting a deep evaluation of the company for the purpose of finding every opportunity to generate value and streamline.
"As part of this process, we have decided to momentarily suspend the plan for building a Teva campus in Ra'anana in order to consider each of its elements, its character, and its budget framework. We will consider other solutions (including continued construction of the campus in a different format) in order to provide an optimal solution to the needs of headquarters and R&D employees, while saving on costs."
Teva was founded in Israel 116 years ago, and we are committed to preserving the heritage of the company and its founders, and anchoring the activity of the global headquarters and R&D here in Israel. We will continue searching for a solution that will reflect the organizational culture and values that guide us, provide employees with an advanced and comfortable work environment, and promote the scientific, technological, and business excellence underlying the company's future."
In late 2014, under the management of former CEO Erez Vigodman, who resigned, Teva announced its Ra'anana campus project for building a new luxury campus for the company. The planned cost of the project was initially estimated at NIS 500 million, later raised to over NIS 1.2 billion ($320 million).
The campus was designed to house Teva's main offices, laboratories, and production facilities. Several hundred million dollars is not a large amount in comparison with Teva's cash flow, but real estate projects have a way of growing and costing more than planned.
In past comments on its project, Teva said that the investment would result in an immediate saving in the cost of renting its main offices in Petah Tikva and other locations, which it estimated at several million dollars a year. Teva's lease for its Petah Tikva site is scheduled to expire in 2020.
Teva has already bought the land in Ra'anana for a price previously estimated at NIS 160 million, and selected Electra Ltd. (TASE: ELTR) and Tidhar to carry out the project, in cooperation with the Bjarke Ingels Group (BIG) and Moshe Tsur architectural firms. A source close to Teva, however, said that the company probably had an escape clause with a small penalty in its agreement that the company could exercise if it chooses to forego the project.
Teva's current market cap is $35.9 billion. The company share price recently rose after the company confirmed its forecasts for 2017 in a conference call summarizing 2016 two week ago, and following the delay in the entry into the market of a competitor for Copaxone, Teva's flagship product. The 9% rise in its share price, however, followed a decline of 50% from its mid-2015 peak.
The main reason for the drop in value is Teva's $35 billion debt acquired when the company acquired Actavis, Allergan's generics division, at a price now regarded as excessively high. The acquisition gave Teva additional generics business, but has left it currently unable to make acquisitions, and is hampering its development of innovative drugs. Teva is now searching for a new CEO to replace Vigodman.
Published by Globes [online], Israel Business News - www.globes-online.com - on February 26, 2017
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