At the end of Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) CEO Erez Vigodman's speech, after being named "Man of the Year' at the Globes Israel 2015 Business Conference, he held the following interview with "Globes" editor in chief Hagai Golan.
"Globes": You started out as an accountant and university lecturer, you managed a food company, Strauss Group Ltd. (TASE:STRS), which you merged with Elite, you managed chemical company Makhteshim Agan (now Adama Agricultural Solutions Ltd. (TASE: ADAMA)), and now you manage pharmaceutical company Teva. What are you?
Vigodman: "First of all, I'm a person. When you peel back all the layers and strategies from a company, you're left with people. I believe that the people in every organization team have the potential to achieve more. The trick is to make better use of that potential."
Does that mean that a good manager can manage everything, as long as he has the right talents?
"A good manager can manage anything. There's a line that goes from management to leadership. I heard a story from Shimon Peres about the time he was Prime Minister David Ben Gurion's assistant. He asked Ben Gurion then how he defined Peres's job. Ben Gurion answered that Peres managed what existed, while he himself (Ben Gurion) managed what didn't exist. Management is managing what exists - to get the maximum out of it. During the era we're operating in now, with its pace of change, we want to see more people at all levels of the organization going from management capabilities to leadership capabilities - managing what doesn't exist."
2015 was not an ordinary year for Teva. The company teetered between two enormous deals. The first was for the acquisition of Mylan N.V. (Nasdaq: MYL; TASE: MYL) - a measure blocked by the aggressive attacks by the Mylan chairman, who wanted to acquire Perrigo Company (NYSE:PRGO; TASE:PRGO) - and the second was the acquisition of Allergan's generic division. It looks like you first planned to acquire Mylan.
"No. In 2014, we wanted to consolidate Teva's infrastructure for absorbing business and the processes applying to the branded drug field. We did two things there, until we got to a point at which it became clear to us that we were carrying out a transformative measure. We mapped all the possibilities in the world suitable for the breakthrough we wanted to achieve. We had two lists on the wall: one in the branded drug sector and the other in the generic drug sector. Without talking to the companies, it was clear if we succeeded in buying one of the world's three largest generic companies, our biggest competitors, it would be an unprecedented step up for Teva, with more potential for further acquisitions.
"None of these three companies were waiting for us. In our order, the first was Allergan's generic division, the second was Sandoz, owned by Novartis, and the third was Mylan. We first contacted Allergan, and got a negative answer. They said they wouldn't sell the generic business, which was important to them. We also got a negative response from Novartis, so we got in touch with Mylan, which we hadn't intended to do, and everybody understands why. The possibility was to go for Mylan in a hostile takeover without the consent of the company's management. When we were close to it, I made another phone call to the heads of Allergan. I told them that we were getting close to the moment when we would do something irreversible - if we completed the acquisition of Mylan, their asset would be worth less, and we would also change the generic drugs market and narrow down the number of potential acquisitions. They got back to me and said it was worthwhile pursuing. Two weeks later, we closed the Allergan deal."
The Allergan acquisition is a kind of gamble for Teva. Will it succeed?
"Let's wait three years and see - either they'll regret it, or they'll name me as man of the year again. We know Allergan well, and believe that we're managing the risks and doing everything to realize the potential."
Describe how it feels at the moment when you sign a commitment to pay $40 billion.
"First of all, it's $40.5 billion. It's a heavy responsibility. If you don't take calculated risks and leave your comfort zone, however, you can't get very far, and you can't do things that will really change the rules of the game. The Teva of today is a company that generates something like a free cash flow of $5 billion. After the Allergan acquisition, we'll generate $6.5 billion in the first year, and our free cash flow in 2018 will be $8.5 billion. That means that we'll repay all the debt from the deal within 3.5 or 4.5 years. We have only just completed a major financing round in the US."
Critics have said that Teva pays almost no taxes. You said that industry must not leave here.
"All of Teva's tax benefits are focused on a single product - Copaxone. When (late Teva chairman and CEO Eli, H.G.) Hurvitz requested tax benefits for the Copaxone project, our plan was for a maximum of $200 million in sales. That was a risky plan for Teva, for which Copaxone was its first branded drug. Because of the risk, we asked the Investment Promotion Center for a grant, not a tax exemption. They got back to us and said that Teva should take the risk, not the state. They told us, 'Take zero tax, and if you succeed, you'll pay zero tax.' Furthermore, it hasn't been zero tax for a long time; we pay tax on Copaxone.
"All the countries in the world realize that part of attracting investors and companies is through tax benefits. Is there something that they don't understand, and we understand better than they do? They understand one thing better than we do - that the tax benefit is one element of a number of aspects. A business company generates added value, and contributes to the gross national product, which not made up of just tax. Teva pays huge amounts for investment in R&D centers, and more on plants and equipment. Teva's investments total NIS 14 billion. Even had we gotten NIS 12-14 billion in tax benefits over the years, in one year we put the added value back into the economy here. This isn't just Teva; it's also Intel."
What motivates you personally? It isn't the money, right?
"Not money. To conquer the mountain and go on to the next high mountain after it. One mountain after another."
What is the most important tip you can give in management theory?
"To always remember that it all begins and ends with people."
What is your next goal? Maybe politics?
"I'm committed to Teva for the coming years. There's an agreement for three more years. We'll talk again then."
Published by Globes [online], Israel business news - www.globes-online.com - on December 7, 2015
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