Benny Landa Plans Shareholder Coup at Teva

Some of Teva' bylaws, such as the requirement the CEO and majority of the board be Israeli, are frowned upon by American capital markets.

Businessman Benny Landa is in discussions with Israeli investors and U.S. investment funds with shares of Teva Pharmaceutical Industries in an effort to put together a group that could move to replace the company’s board of directors.

Landa, 66, founded Indigo Digital Printing in 1977 and sold it to HP for $830 million in 2002. He is thought to own tens of millions of dollars worth of Teva shares. Landa is focusing his efforts to take control of Teva’s board on American institutional shareholders because the 14 biggest collectively own nearly 34% of Teva shares, currently worth $11 billion, and are therefore capable of moving such a move forward.

Teva, the world’s largest generic drug manufacturer, has seen turbulent times recently, culminating in the dismissal in October of CEO Jeremy Levin after just two years. He was replaced by acting CEO Eyal Desheh.

Teva’s largest shareholders are the Capital Group, with about 7.5% of Teva shares, worth $2.5 billion; Wellington Management, with nearly 7%, worth $2.3 billion; and Vanguard, 3.5%, valued at $1.2 billion.

The largest individual investor is Teva chairman Phillip Frost. He owns 1.5% of the company’s shares, which he acquired in connection with his sale of his Ivax pharmaceutical firm to Teva in 2006.

Observers believe Landa hopes to convene a shareholders’ meeting at which he will put a proposal to change company bylaws to a vote, as a prelude to a move to replace the board. Teva’s bylaws, which were last amended in 2002, contain various “poison pill” provisions designed to impede a takeover. One provision, for example, stipulates that a majority of directors be Israeli and that the CEO must be an Israeli resident.

Since 2002, the company has expanded through a wave of acquisitions; 84% of Teva employees and 85% to 90% of shareholders are not Israeli. Although headquartered here, the company has a global reach, and 96% of its sales are to markets outside of Israel.

Sources in the American capital markets have argued that the fact that Teva’s CEO is not a director exposes the management to interference in day-to-day issues rather than confining their involvement to business strategy.

The fact that the corporate bylaws require that the CEO and a majority of the board to be Israeli limits the company’s ability to recruit the best candidates, they add.

There has been harsh criticism in the U.S. capital markets over the board, which has been seen in some circles as a rubber stamp for Frost. It has been suggested that Frost has a conflict of interest because he controls a second pharmaceutical company, Opko Health, which has a market cap of $4.5 billion.

Teva’s board has approved $22 billion in acquisitions in the past four years, but the company’s value has slumped by 38%, or $20 billion, since peaking in March 2010. This, at a time when U.S. pharmaceutical stocks have surged in value.

Teva’s poor stock performance over the past year has led to speculation that it could be a takeover target by a competitor or private investment fund that could take advantage of current low interest rates to pull off a leveraged buyout by splitting up the company and selling off the pieces separately.

There has also been criticism that the Teva board is insufficiently professional and global in its perspective for a company of its kind, as well as a feeling among critics that at 16 directors the board is too big.

The lack of confidence in the board on the part of U.S. capital markets was exacerbated in October after the hasty dismissal of Levin, who was considered knowledgeable and experienced in developing proprietary drugs.

That was viewed as an especially important direction for the company in light of Teva’s heavy reliance on sales of one drug, its multiple sclerosis treatment Copaxone. The drug accounts for 60% to 70% of Teva’s net profits, but could face competition from generics as early as May of next year.

Bloomberg