Last Friday, the Bloomberg news agency reported that Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) was considering up to 10,000 layoffs worldwide. The news agency qualified its report by saying that no final decision on the streamlining plan had been taken yet, and the number of layoffs was likely to vary between 5,000 and 10,000, but the report boosted Teva's share price by 7.1% in New York, bringing it above $16, its highest point in two months, on a higher-than-average trading turnover. Even after the surge, however, Teva's share price is still 48% below its level in early August, when the steep decline in the share began, after the company downgraded its guidance for the year and cut its dividend.
The company itself did not respond to the report, saying only, "Teva does not respond to rumors." Teva is faced with a $34.7 billion debt, mostly from the acquisition of Actavis in 2016, for $40 billion. In order to repay this debt, and in an attempt to maintain its investment rating, Teva has had to sell assets and lay off employees in recent months. Two weeks ago, the company, headed by CEO Kare Schultz, presented a restructuring plan including the consolidation of its generics original drugs divisions and its activity in three geographic regions (North America, Europe, and growth markets).
With the report of the plan, the company stated that its new organizational structure would utilize Teva's economies of scale, enhance its flexibility and efficiency, and provide closer contact with the markets. It was also stated that full particulars of the plan would be published in mid-December. In other words, Teva's employees, now in a state of uncertainty, and investors will receive more information in the coming days.
Last month, even before Schultz joined the company, Teva announced that it would cut back its work force by 7,000 employees, compared with the number following the acquisition of Actavis, completed in July 2016. Teva had 56,960 employees worldwide at the end of 2016 (the number has since fallen following layoffs at the company in Israel and overseas). Last summer, Teva reduced the number of employees at its sites in Kfar Saba and Ramat Hovav by 230. The company originally intended 350 layoffs, but cut back on its plans, following strenuous opposition from the workers' committees, the Histadrut (General Federation of Labor in Israel), and Knesset members.
One of the main targets for layoffs in Israel is the company's headquarters in Petah Tikva. On the eve the publication of the detailed plan, the Citi Research investment bank last Friday raised its target price for Teva's share from $13 to $16, while retaining its "Neutral" recommendation.
Analyst Liav Avraham wrote that she expected that in addition to publishing the plan, Shultz would announce what Teva's new priorities were and provide initial guidance for 2018. "We believe that Teva's strategy will focus on maximizing cash flow in an attempt to reduce the company's leverage as quickly as possible," she wrote.
According to Avraham, the anticipated cut in expenses in the framework of the plan will be significant, amounting to $1.5 billion by 2019. She believes that Teva will also announce the closing down of plants later. On the other hand, Avraham says that Teva will not hold a financing round in order to maintain its investment rating from Moody's and S&P (Fitch already downgraded Teva to the junk bond level). "In our estimation, Teva has to show a clear way to reduce its debt from $10 billion within 12 months in order to keep its investment rating. Part of this will be paid from proceeds from the sale of assets (about $2 billion), but generating internal cash flow is likely to be enough for the required amount."
Workers accusing: "You can't say that there's no money for a more dignified early retirement when Michael Hayden is getting $2.5 million in a golden parachute and salary."
While the capital market is lauding the report of 10,000 layoffs, the workers are obviously much less delighted. According to K., a candidate for early retirement, "The mood among the workers in the offices is really poor. The workers are virtually in mourning. People who have worked there for 20 or 30 years will have to go home with nothing. Workers took mortgages and debts, and their world is about to crash. The candidates for early pensions are almost 60 years old, and they certainly won't find work outside, because they have been at Teva for many years, and know nothing about anything outside. They married at Teva, married off their children and now they have grandchildren.
"Two weeks ago, workers could go home with their heads held high, with increased compensation, and early pensions. I'm not talking about the managers, but about workers who earned peanuts, but could live in dignity when they reach pension age. Along came a new CEO and put a stop to all of it. Everyone feels that the axe is going to fall within a few days. We only ask that the Histadrut not sell us out, and that management allow us to leave with dignity, and of course, that the government intervene."
Another headquarters worker also mentioned the depressed mood, in which the workers are not doing their work, assuming that most of them will soon lose their jobs. The workers are worried that when the layoffs are announced, the market will be flooded with workers, and some of them are even resigning even ahead of time with poor terms in order to be the first in line for the few available jobs development of generic drugs in the market.
The employees are not only sad or fearful; they are also making accusations. "In the past two years, there have been more managers than workers at the management site, and they were all recruited by word of mouth," says K. "You can't say that there's no money for a more dignified early retirement when Michael Hayden is getting $2.5 million by the end of 2018, and he also won't be at Teva, and Eyal Deshe took a retirement bonus of 15 months' salary."
Published by Globes [online], Israel Business News - www.globes-online.com - on December 10, 2017
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