Analysis

Teva Is Hurting Its Chances of Emerging From the Ruins

Now more than ever the pharmaceutical giant needs a CEO who will rehabilitate the company - but with a package worth $9.2 million, the temporary CEO has no incentive to give up his job

Interim Teva CEO Prof. Yitzhak Peterburg, 2015.
Jonathan Bloom

“A terrorist preventing the appointment of a permanent CEO is on the Teva board of directors,” said Benny Landa, the activist investor in Teva Pharmaceutical Industries, in an interview over the weekend.

Landa was referring to the information leaked about Teva’s negotiations with AstraZeneca CEO Pascal Soriot about his appointment as the CEO of Teva. The report, which was published about three weeks ago, didn’t contribute to the success of the negotiations, and Soriot’s candidacy is apparently off the table.

“Terrorist” is a harsh word, and it’s difficult to prove Landa’s claim, but one thing is certain: One member of the Teva board has a personal interest in preventing the appointment of a permanent CEO: The company's interim chief executive, Prof. Yitzhak Peterburg.

The Teva board of directors appointed him CEO after Erez Vigodman was ousted from the position in February 2017. Until then, Peterburg was the chairman of the board.

It was an odd appointment even then: Peterburg was chairman when the board of directors supported the management’s proposal to acquire Actavis Generics for $39 billion, a deal that caused colossal loss of value to the shareholders.

The current chairman, Dr. Sol Barer, said that in the past six months he has devoted all of his energies into appointing a permanent CEO.

Barer said repeatedly that the next CEO will be a person of stature with extensive experience in the pharmaceuticals industry. This requirement makes Peterberg’s candidacy irrelevant. Barer promised to search everywhere, and hinted that the question of the next CEO’s place of residence would not be an obstacle, although Teva’s regulations require that he or she be an Israeli resident though necessarily a citizen.

Barer asserted once again in the conference call that took place with analysts last Thursday that he does not intend to compromise on choosing the CEO and won’t make a hasty decision. He noted that he has been pleased with the quality of the candidates he has met. There is no reason to doubt the sincerity of Barer’s intentions, but there is room to doubt the wisdom of the board of directors, which – with the approval of the shareholders – created attractive incentives to keep Peterburg in his position.

These incentives have created a situation in which the interests of the chairman contradict those of the CEO: One is committed to appointing an international CEO while the other would lose out from such an appointment. The remuneration package approved for Peterburg in July is based on the employment conditions of the previous CEO, Vigodman, and includes a base salary of $130,000 a month ($1.6 million a year) and a monetary grant of 140% of the annual base salary for meeting the company’s quantitative and qualitative targets. This comes out to $2.2 million plus a maximum grant of 200% of the annual base salary –in other words, $3.1 million – and an annual capital grant at a target sum of $4.5 million composed of three equal portions of share options, blocked shares based on performance and blocked shares: a total of $9.2 million.

A package worth a total of up to $9.2 million is hard to give up. A CEO, even a temporary one, does not hold a negligible function in an organization. In the past, Peterburg served as the CEO of Clalit Health Services, the CEO of the telecommunications company Cellcom and the chairman of Teva. It is highly unlikely that Peterburg will get to serve as CEO of a company of Teva’s size, even after its crash.

The Teva board of directors, about half of whom are signatories to the failed Actavis Generics deal that was the backdrop to the departure of its three main architects – Vigodman, CFO Eyal Desheh and CEO of Teva’s Global Generic Medicines Group Sigurdur Olafsson. Not only did they not resign after the fact, but they also created an intolerable conflict of interest which doesn’t make it easy for Barer to recruit a CEO of stature in order to begin rehabilitating the company.