News That Buffett Bought Teva Shares Sends Stock Soaring

Berkshire Hathaway says it owns 1.8% of drugmaker, in a vote of confident for ailing pharmaceutical giant

Warren Buffett, chairman and chief executive officer of Berkshire Hathaway Inc., speaks at the Goldman Sachs 10,000 Small Businesses Summit in Washington, D.C., U.S., on Tuesday, Feb. 13, 2018. Goldman's 10,000 Small Businesses is an investment that brings economic opportunity and assists entrepreneurs to create jobs by providing better access to education, capital and business support services. Photographer: Andrew Harrer/Bloomberg
Bloomberg

Teva Pharmaceuticals shares posted a double-digit gain on the Tel Aviv Stock Exchange Thursday after news that Berkshire Hathaway, the investment vehicle of the legendary Wall Street investor Warren Buffett, had become a major shareholder.

In a quarterly filing, Berkshire Hathaway disclosed it held 18.9 million Teva shares as of December 31, equal to about 1.8% of the company and worth $394 million before the shares price shot up on the report.

The news, reported late Wednesday by The New York Times sent Teva’s share price soaring in after-hours trading. On the TASE, they closed up 11.5% at 47.61 shekels ($13.49), for an 85% rise since they began recovering when Kare Schultz became CEO in November.

Teva and Berkshire declined to comment on the Teva stake, but Buffett will provide more details about Berkshire’s investments and its more than 90 operating businesses in his annual shareholders letter, slated for release on February 24.

The quarterly filing also showed Berkshire increased its holdings in Apple by 23.3%.

Buffett is chairman of Berkshire Hathaway, and his business partner is 93-year-old vice chairman Charlie Munger. The conglomerate’s many subsidiaries include Duracell, Kraft Heinz and Geico.

Buffett’s investment choices and views on the market are widely followed. His 2006 acquisition of Israel’s Iscar, a toolmaker, was a major media event and taken as a vote of confidence in the Israeli economy after the Second Lebanon War.

Likewise, his stake in Teva gives critical support to those who say that Teva “is taking the right steps to execute on a successful turnaround,” Citigroup analyst Liav Abraham wrote in an emailed note to clients.

But others were not convinced. “Berkshire’s involvement is surely a contrarian bet and not necessarily the right one,” said Bloomberg columnist Tara Lachapelle.

Schultz faces a formidable challenge in turning around Teva, which has been buffeted by a decline in its key generic-drug business in the United States as well as the loss of exclusivity for its best-selling Copaxone multiple sclerosis treatment. The company’s woes are compounded by a $32 billion debt load it took on buying Actavis generics in 2016.

Even with Schultz’s arrival and the bounce higher of Teva shares, the stock remains down 44% from a year ago.

“The intimidation, bullying and misery facing the healthcare industry has created bargains,” Bill Smead, who oversees $2.3 billion, including $130 million in Berkshire stock, at Smead Capital Management in Seattle, told Reuters.

Although Schultz has been widely praised by investors for slashing costs, including layoffs in Israel and globally, he has also had to contend with a continuing stream of setback.

Last week Standard & Poor’s became the last of the big three rating agencies to cut Teva debt to junk and on Tuesday Novartis’s Sandoz division said it won U.S. approval for its large-dose generic version of Copaxone, creating a second rival. Last Thursday Teva turned in an $11.6 billion four-quarter loss and warned 2018 would be challenging year.

In related news, Teva notified 230 employees of its Plantex plant in the Israeli coastal city of Netanya that it would shut the facility by the start of 2020. Shuttering the plant, which make pharmaceutical ingredients, is part of the restructuring Schultz announced in December that calls for cutting the company’s global workforce by a quarter.