Taking Stock / The Word From Arkin

You keep an eye on Mori Arkin.

Not only because he's a gifted businessman who makes very few mistakes, not only because he took the company he received from daddy at age 19 and turned it into an empire, and not only because he sold it yesterday for $900 million.

No, you keep a beady eye trained on Arkin because he's a master of timing. When he sells, you should sell; when he buys, you should, too, generally speaking.

In the last decade-and-some, Arkin has carried out five main financial maneuvers. Twice he managed to offer Agis stock right at the peak, in 1992 and 1993, moments before collapse.

Come 1997 and the advent of foreign investors to Israel and he was one of the first to rope them in. He sold a quarter-billion shekel block of Agis stock, yet again seconds before a crash.

In 2002, when Agis presented losses and its share price collapsed, he came to the rescue of his sister Daniella Yanai and bought out her shares in the company. Months later, the stock started to skyrocket, doubling in price as the company's operations stepped up a strategic notch.

At the end of 2003, the investment world suddenly noticed the "baby Teva," yes, Arkin's Agis. Its market cap shot up to a billion dollars and the smell of merger was in the air. And Arkin did it again: He whipped out his gun and fired, selling NIS 210 million worth of Agis shares.

Shortly thereafter, a matter of months, generics were shooed into the doghouse and Agis stock started to implode yet again.

Then, on Tuesday night, Arkin upped and announced that he had found a buyer for the company. He was selling Agis to Perrigo Co. of the U.S. for $900 million, half in cash and half in shares. He's in for 42 percent of the compensation, which will make him one of the most liquid men in Israel.

Arkin is confident that Perrigo is the definitive match for his baby and he had a clear vision of how the two companies would charge ahead hand in hand. But when asked a direct question yesterday, he had a very clear answer that will cause quite a few people to lose quite a few hairs.

The generic market faces structural change, Arkin said. Profitability will wane and fluctuation will intensify. Arkin foresees an end to the days of generic drugmakers basing their business models on locating profitable niches, developing drugs and siccing lawyers on other companies' patents. The key to success in the new generic space is to migrate from innovation and courtrooms to industrial efficiency, he counsels.

His word and his deed

That's the word from Arkin. And what has he done? He's sold half his shares for cash and the second half he's converting into shares in the merged company. He'll probably be selling them over the years, too, depending on his undertakings in the merger agreement.

His message to Agis shareholders is clear: I am selling. You may want to sell, too. It isn't that it's a bad business; it may yet have many good years, but in a different world, a riskier and harder one.

Okay. But the really interesting question is an entirely other one. Is his vision relevant to another company entirely, against which, he sarcastically quipped, all other players are gnats?

Arkin didn't name names when he said the era of some great generic companies may have passed. But the response shot over to Haaretz in almost no time left little doubt who felt stung by his arrows. Teva Pharmaceuticals snarled that the generic market will continue to flourish: strong companies will continue to acquire and weak ones will be bought.

Well said, Teva people, but we'd all do well to remember that it isn't only the biggest generic drug company in the whole world, it's also the stock in which most Israeli wealth is sitting. Teva's is the stock that has created the most wealth for Israeli investors in the last decade.

After Teva shares shrank by 30 percent in the last year, we all discovered to our astonishment that it had become the stock of the masses. The neighbor tells you that his wife bought some Teva shares for the kids. The cop that stops you for speeding asks while writing out the ticket what he should do with his Teva shares. At the office, Teva is the talk of the watercooler. It turns out that after Teva's 10-year streak skyward, everybody and his dog is in the Teva business, whether or not they know a thing about what the company does.

Fine: Teva is a superb company with a history of achievement. It is natural for the Israeli investor to diversify his portfolio with shares in the company that has created so much value for its backers.

But one has to suspect that all too many people didn't understand the potential risks. Yes, Teva is the best company ever created in Israel, with the best management, but a stock is a stock. It isn't a government bond or a deposit at Chase Manhattan.

Teva is a company operating in a field that many people, not only Arkin, see is changing rapidly - and to the detriment of the players in some ways.

Over the years, Teva's management has proved it sees miles beyond everyone else; it makes plans not for the quarter to come but for 20 quarters to come.

If the generic scene really is changing, Teva is likely to reinvent itself, as a company developing original drugs, as a biotechnology company, or by pursuing its policy of growth through acquisitions and consolidation. Or, as it growled yesterday, we shall continue to buy and grow strong and Arkin and his ilk can sell and get out of the game.

But Teva investors who think its stock is a one-way ticket to fortune, and that each dip will be followed by a gain twice as big, might consider following Arkin's example. Sell, diversify risk and take home some cash.