The appointment of Kåre Schultz as CEO of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) sparked a 20% rise in the company's share price on Wall Street yesterday. The share closed at $18.50, reflecting an $18.8 billion market cap - a gain of $3 billion in one day. The current price is still 41% lower than the company's share price at the beginning of August, before the company reported poor second quarter results, downwardly revised its forecasts, and cut its dividend. The share resumed its climb today on the Tel Aviv Stock Exchange (TASE), reaching nearly $20, an additional 7% rise.
Teva provided investors with more good news at the end of yesterday's Wall Street trading, announcing its first sale of an asset in its plan for selling activity that is not part of its core business. The plan is designed to help service the company's $35 billion debt. Teva signed an agreement to sell its Paragard product, an intrauterine contraceptive device, to the CooperSurgical company for $1.1 billion in cash.
"This is probably good news, because it is not good for any company to operate without a permanent CEO, and certainly not for a company on the scale of Teva. In addition to its complexity and widely diversified business, Teva faces many challenges in its business environment and a great deal of leverage," Leader Capital Markets Ltd. (TASE:LDRC) analyst Sabina Levy wrote today in response to the news. "I'm very eager to finally see managerial stability at Teva, and stability and consistency in strategy. There have been too many changes in recent years, and it is illogical for a big ship like Teva to tilt from one side to the other each time. Teva needs someone permanent and dominant to map its path forward."
Levy writes that with the appointment of a CEO, the appointment of a regular CFO can be expected soon (a temporary CFO was appointed following the resignation of Eyal Deshe last July). "It is good that a CEO from the industry has arrived, and good that he is coming over abroad, because that delivers a soothing message to foreign investors," she adds. "It is also being said that Schultz is more oriented towards innovative drugs and less towards generics. The question is whether he will maintain Teva in its current format, or cut back on its generics deployment." At the same time, Levy notes that Lundbeck, where Schultz was CEO, is a smaller, more focused, and more of a niche company than Teva, a large-scale company with many challenges. In this sense, "Schultz is stepping into big shoes," Levy believes. "His immediate challenge is the financial one, because the large leverage is a burden on the share and the company. The next goal is a business one - to formulate a strategy."
In the context of the Paragard sale, Levy writes, "This is not a surprise, but it is good news, because Teva is making progress towards a situation in which it will be able to improve its financial soundness." Teva is required to meet certain financial conditions by the end of the year, and Levy believes that it may not be able to do so, due to the timing of its sales of assets, but that progress in this matter could help Teva in its discussions with the banks.
"A floor for the share, an incentive for investors"
Goldman Sachs derives the sale price of other women's health and oncology assets that Teva is offering for sale from the Paragard sale, and expects sales totaling $1.1-1.6 billion. Analyst Jami Rubin writes, "Investors should feel confident in the company's ability to get more than $2 billion from the sale of assets, which will support the repayment of $5 billion this year. Concern about this was a key factor in the recent dive in the share price."
Even before the sale of the assets, the analysts covering Teva responded positively to Schultz's appointment yesterday. Barclays Capital analyst Douglas Tsao wrote that the appointment removed the cloud hanging over Teva since Erez Vigodman left the company in February. "Schultz comes to the job with limited balance sheet flexibility with respect to new strategic initiatives," Tsao reminds his readers, but adds that the positive results for Teva's anti-migraine drug and the recent launching of the Austedo drug provide him with growth engines. "Schultz brings with him the qualifications needed to put Teva back on track," Tsau believes.
The appointment of Schultz has also resulted in one improved recommendation. The BTIG investment banks upgraded its recommendation for the Teva share from "Neutral" to "Buy." "The appointment is a catalyzer that will put a floor under the share price, and provides an incentive for investors' sentiment," BTIG managing director and analyst Timothy Chiang believes.
Published by Globes [online], Israel Business News - www.globes-online.com - on September 12, 2017
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