Analysis: Teva, the day after [p.16]

By SUSAN LERNER
October 20, 2006 05:26
2 minute read.

 
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As a country full of "experts" weighed in with their thoughts on news of the surprise retirement of Teva Pharmaceutical Industries Ltd.'s Chief Executive Officer Israel Makov, CIBC World Markets already had cut right to the bottom line. "We couldn't view the move positively given that it adds additional company uncertainty at a time of heightened anxiety about the global generics sector overall," New York-based analyst Elliot Wilbur told clients Wednesday afternoon as rumors began to swirl that an announcement of a change at the top of the world's largest drugmaker was imminent. "If true," Wilbur had said, "the move is abrupt and inconsistent with prior management style." Furthermore, Wilbur commented, the move "fuels concerns that Teva management may be losing its edge." Indeed, many suggest Teva Chairman Eli Hurvitz did "protest too much" in a local television interview following the announcement that Makov would be succeeded by Makhteshim-Agan Industries CEO Shlomo Yanai. Amid speculation that Makov actually was forced out of the position, Hurvitz repeatedly said it all was part of a plan. Not a far-fetched theory, a force-out. Teva's net income and share price have morethan-doubled since Makov took over, but the stock is down some 25 percent this year and, as CIBC's Wilbur pointed out, the industry is at a critical moment. Makov wouldn't be the first CEO given the boot for poor share price performance and taking into account a generics industry that is facing pressures on profits due to increasing competition, it's not logical to just "up and go" voluntarily, leaving the fate of the company in the hands of someone with no pharmaceutical experience. "What does a fertilizer company executive think about generics?" asked Citigroup analyst Robert Bonte-Friedheim in a research note. "I don't know of any pharmaceutical company that hires someone with no basic skills," local analyst Ori Hershkovits was reported as saying, while another local pundit Yisca Erez was quoted as calling the move "inexplicable." True, Makov is 67 and it would seem logical he may be ready to retire, but these analysts are right, and the appointment of someone with little appropriate experience to fill his shoes smells of a "rush job," which generally don't work out all that well. Just how proud could the country's biggest company have been with its decision, not even calling a press conference for such an important announcement, or at least scheduling a conference call following the news. Given that the management change is not to take place until the "first part of 2007," Teva, likely would have been better off not naming a successor but just announcing that Makov indicated a desire to retire and that it would "immediately begin a search for his replacement." That would have seemed more like a "planned succession strategy," which the company claimed to be pursuing - more like the approach General Electric took when its iconic leader Jack Welch announced his planned retirement and turned the reins over to Jeffrey Immelt While proceeding in that manner might not have quieted the hounds, it certainly couldn't have been worse than Teva's approach.

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