"It's important to me to say to the employees that I'm very sad about the good people around the world who will leave the company not for their benefit. I'm very sad about that, but it's necessary, that's the situation, and that's what has to be done. We carried out a comprehensive review, and what we're doing now is what has to be done in order to remain a competitive and strong company," Teva president and CEO Kare Schultz told "Globes" this evening.
The Israeli pharmaceuticals company presented its extensive downsizing plan today. It calls for the layoffs of 14,000 employees, more than a quarter of the company's workforce, 1,700 of them in Israel. Even before the official plan was announced, many politicians expressed their dismay at the expected cutbacks in Israel, and the Histadrut (General Federation of Labor in Israel) declared a general strike for Sunday.
To what extent is Teva open to discussion with the Histadrut and the government on the cutbacks in Israel?
Schultz: "Of course there is dialogue, and I had a very pleasant conversation today with the prime minister in which we agreed on the importance of keeping the headquarters in Preah Tikva and on the importance of Teva's roots in Israel. When I accepted the CEO position, it was important for me to move to Israel, and I certainly understand the importance of those things. We also talked in our conversation about the importance of Teva being a strong and profitable company.
"There are things that are not matters for discussion. When a plant is not profitable and does not fit in to the big picture, the change has to be made. It's a global puzzle, and there is no specific focus on Israel in the plan. On the other hand, we have sites like Kfar Saba and Teva Tech where there is no intention of reducing manpower." (There were layoffs at these sites last summer, S.H.-W.)
Were you surprised at the way the share price responded to the announcement of the plan?
"I think it was predictable that there would be a positive reaction, mainly because of the removal of the uncertainty."
What have you learned about Teva in the six weeks you have been in charge?
"Before I said 'Yes' to this job, I did my homework, I learned a great deal about the company, so from my point of view there weren't many surprises as far as the company's situation was concerned. What I learned was mainly about the people in the organization. On the positive side, I learned that the people I met are professional, devoted, fit for the job, and full of motivation. On the negative side, I learned that the enterprise was built in a very convoluted way, such as reduced the efficiency of the business. We are now taking action to correct this through the structural change we announced, with the aim of making the enterprise more direct and clearer."
What were the main mistakes that Teva made in the past, that led to the current position?
"I don't need to talk about mistakes that may or may not have been in the past. I prefer to focus on present challenges. One of them is that there were many acquisitions that caused the organizational structure to be very complicated. Geographically too, a situation was created in which there are many production and R&D sites, as a result of the many acquisitions that took place. In addition, Copaxone was a phenomenal success, but it is coming to an end."
Is the generic competition from Mylan stronger than you expected?
"No, the competition is in line with what we expected. But in general, Teva has for years had a large profit from one single product, and it's always a challenge for companies to overcome the loss of exclusivity on a product like that."
The streamlining plan is designed to enable Teva to meet repayments of its debt of $34.7 billion, most of which was incurred in order to finance the acquisition of Actavis in 2016. Rating agencies S&P and Moody's currently rate Teva's debt investment grade, but with a negative outlook, one grade above junk status. Fitch has actually downgraded Teva's debt to junk status. Asked whether Teva would be able to preserve its investment rating, Schultz responds he cannot answer that because it's a decision for the rating agencies. Teva plans to reduce its leverage ratios in the coming years; under the agreements with the lender banks, it has to report a debt to EBITDA ratio of 5 at the end of 2017.
Are you optimistic about Teva's prospects in the future?
"I'm very optimistic, but I can usually combine conservative realism with this optimism, and I'm very optimistic that we will be able to emerge from the process a strong company."
Published by Globes [online], Israel business news - www.globes-online.com - on December 14, 2017
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