Teva Pharm to lay off a quarter of workforce, suspends dividend
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Teva Pharm to lay off a quarter of workforce, suspends dividend
* Restructuring to cut cost base by $3 bln by end of 2019

* Teva to take restructuring charge of at least $700 mln in 2018

* Teva shares surge 14.6 percent in New York (Adds comments from conference call, analyst, share reaction)

By Tova Cohen and Ari Rabinovitch

TEL AVIV, Dec 14 (Reuters) - Teva Pharmaceutical Industries will cut its workforce by more than a quarter, give up many of its manufacturing plants and suspend its dividend on ordinary shares in a much-anticipated overhaul to help pay back its massive debt.

Israel-based Teva, the world's largest generic drugmaker, said on Thursday the move will result in a reduction of 14,000 positions globally, with the majority to come in 2018.

The two-year restructuring plan is intended to reduce Teva's cost base by $3 billion by the end of 2019, out of an estimated cost base for 2017 of $16.1 billion.

Shares in Teva were up 14.6 percent at $18 in New York, but are down 53 percent since January.

Investors will like this plan as most are focused on the near-term cost cuts and not the business outlook, Wells Fargo analyst David Maris said.

"However, in our view, the new CEO's $3 billion cost-savings goal is larger than we had anticipated, and while this is more needed for survival versus optimisation, it may also have significant negative effects to Teva's competitiveness," said Maris, who rates the shares "market perform".

Saddled with nearly $35 billion in debt since acquiring Allergan's Actavis generic drug business for $40.5 billion, Teva made a series of changes after Kare Schultz joined as its new chief executive on Nov. 1.

Teva expects a restructuring charge from the plan in 2018 of at least $700 million, mostly to come in the second and third quarters and mainly related to severance costs. Additional charges may follow decisions on closures or divestment of plants, R&D facilities and office locations.

"A longer-term strategy will come later in the year, however, in the near term we must remain focused on cash-flow generation, short-term revenue and serving our debt," Schultz said in a letter to employees.

SERVICING DEBT

Investors and analysts have questioned how Teva will be able to service its debt in coming years.

In a conference call with analysts, Schultz said Teva would use cash flow to pay down debt, initially focusing on bank debt.

"We do not plan to raise equity in any of the forms that you imagine," he said.

The company also expects help next year from two new branded products - its migraine drug fremanezumab and Austedo, which treats abnormal, involuntary movements associated with Huntington’s disease.

Some 1,700 jobs will be cut and a manufacturing site will be closed in Israel, where the main labour federation threatened to hold a half-day general strike on Sunday, the start of the Israeli work week, in protest at the layoffs.

The government went into damage-control mode ahead of Teva's announcement, including a telephone call from Prime Minister Benjamin Netanyahu to Schultz, asking that he keep layoffs in Israel to a minimum.

Economy Minister Eli Cohen weighed in, saying Teva's employees should not pay for the company's failed investments abroad.

"Teva has succeeded thanks to grants and tax benefits it received from the state and thanks to developments by Israeli scientists," he said, adding: "We will fight for every employee."

The company said dividends on convertible preferred shares would be evaluated on a quarterly basis.

Teva will provide its 2018 outlook in February. (Editing by Dale Hudson)

First Published: 2017-12-14 14:41:38
Updated 2017-12-14 16:52:54



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