$11b wiped off Teva's market cap

Teva share trading Photo: Bloomberg

The damage could be even more drastic when trading resumes Monday on Wall Street with Teva down almost 40% in the last two sessions on the TASE.

A 34% plunge in Teva Pharmaceutical Industries Ltd.'s (NYSE: TEVA; TASE: TEVA) share price on Wall Street wiped $11 billion off the company's market cap in two days of trading on particularly huge trading volumes. The loss in value following all the bad news given by Teva to investors: poor quarterly results, a downward revision in its guidance for the year, a cut in the company's dividend, and a warning that the company may fail to comply with the covenants for its huge debt. The damage could be even more drastic when trading resumes tomorrow on Wall Street with Teva down almost 40% in the last two sessions on the Tel Aviv Stock Exchange (22.1% today and 17.8% on Thursday). 

Two international rating agencies downgraded their rating for Teva's debt. Moody's lowered its rating from Baa2 to Baa3, and Fitch lowered its rating from BBB to BBB minus, one level higher than junk bonds. Furthermore, the rating outlook is negative in both cases, meaning that the agencies may further downgrade their rating for Teva. Teva's debt amounted to $35.1 billion at the end of the second quarter.

Teva, managed by acting CEO Yitzhak Peterburg, currently has a market cap of $20.9 billion, 43.2% less than at the beginning of 2017 and 70% less than its peak in summer of 2015.

A year after completing the acquisition of Actavis, the generics division of Allergan, even Teva has realized that the acquisition's $40 billion price was excessive. A $6.1 billion write-down of good will led Teva into a $5.7 billion loss in the second quarter. Teva stated that the write-down was not exclusively for the assets of Actavis.

In a "Globes" interview following the publication of Teva's results, Peterburg said, "It's not possible to separate Teva and Actavis now. The decrease in good will comes from two places - the original Teva and the assets of Actavis."

Even so, however, this reflects the erroneous optimistic assumptions that led Teva into the acquisition. In its expanded quarterly report, Teva provided gloomy forecasts for its business in the US generics market. Teva expects its revenue and operating profit from this business to continue declining for the next two years, and its ability to launch new generic products will not compensate for the erosion in prices of its existing products before 2020. The company expects to return to modest growth in this market only in 2020-2021. Teva made this statement as part of its explanation for the write-down in its good will, and added that changes in the growth rate were liable to bring about further accounting write-downs in the future.

Peterburg added that Teva would sell $2 billion assets that were not part of its core business, compared with a previous estimate of $1 billion. Proceeds from the sales of these assets (in women's health and oncology) are designated for repayment of Teva's debt as part of the company's efforts to comply with its debt covenants. Slashing its dividend by 75% will give Teva $520 million more in the second half of the year.

Beyond that, Teva announced last Thursday a plan to reduce its staff by 7,000 employees, in comparison with the number it had when the Actavis deal was completed.

Published by Globes [online], Israel Business News - www.globes-online.com - on August 6, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

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Teva share trading Photo: Bloomberg
Teva share trading Photo: Bloomberg
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