Commentary: Yanai bows to Teva investors’ pressure

For a long time, market rumors have persisted that Yanai was on his way out.

By SHIRI HABIB-VALDHORN/GLOBES
Yanai 311 (photo credit: Bloomberg News)
Yanai 311
(photo credit: Bloomberg News)
Why did Teva Pharmaceutical Industries Ltd. president and CEO Shlomo Yanai resign, and why now? According to Teva’s official version, Yanai wanted to start a new chapter in his life as he reached 60, possibly public or political activity, after a decade at executive positions preceded by a glorious military career.
But there is another version that knowledgeable capitalmarket sources are relating, and which Teva vehemently denies: Yanai resigned under “market pressure,” or at least under pressure from American investors, who own most of Teva’s shares. These investors have been displeased by the value Teva created for its shareholders, despite the company’s continued revenue and profit growth. For a long time, market rumors have persisted that Yanai was on his way out, but they were strongly denied by Teva spokesmen and executives.
If Teva’s share price can be considered as an index of the popularity of its CEO, Yanai would win no awards. In October 2006, the day of the announcement of his appointment to replace Israel Makov as CEO, Teva’s share price fell 4 percent, and on Monday, the day Yanai announced his resignation, the share price rose 3% on the TASE.
In between, Teva’s share price rose 21% to reach an all-time high of over $60 in March 2010, following the acquisition of Germany’s Ratiopharm. The share price has subsequently fallen 35%.
Some people interpreted this plunge to a crisis in shareholders’ confidence in Teva’s executives, headed by Yanai.
Teva’s investors stopped taking for granted the (optimistic) forecasts given by its executives and worried about rising competition against Copaxone, Teva’s flagship treatment for multiple sclerosis.
Copaxone currently accounts for about one-fifth of Teva’s revenue, and an estimated one-third to half of its profit. As competition intensifies, both from more convenient oral treatments and from generic versions, and in the absence of another blockbuster drug that would compensate for Teva’s dependence on Copaxone, the result was a fall in the share price.
Teva heard the market’s whispers and tried to improve communications with its investors. The guidance for 2012 included great detail about the contributions by business sectors and key drugs. At the same time, the company announced a share buyback.
This time, Teva made every effort not to repeat the mistakes that it made at the retirement of its previous CEO, Makov, in 2006. Then, Teva’s announcement that Yanai was replacing Makov was perceived as earth-shattering, an unexpected and disorganized event. The result was an overworked rumor mill about disagreement between Makov and then-chairman Eli Hurvitz, now deceased.
On Monday, Teva called a press conference in which both the outgoing and incoming CEOs, and chairman Philip Frost, participated, along with all the directors and top executives.
They all stood as one man at the press conference, perhaps in an effort to show unity and support for the change.
As was the case with Yanai, his successor, Dr. Jeremy Levin, was parachuted into Teva from outside. Was it not possible to find a worthy executive to promote to the top job from within Teva’s ranks? The answer, based on the result, is no. Levin, a South African-born Jew who resides in the US, will immigrate to Israel. He spoke in Hebrew at Monday’s press conference and promised that Teva would remain an Israeli company.
Teva’s articles of incorporation stipulate that its administrative headquarters will stay in Israel and that its CEO will live here. But for the first time in company history, neither its chairman nor its CEO are Israeli. Was there not a single Israeli worthy of managing the flagship of Israeli industry?


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