Shareholders aren’t too fond of surprises. And in Teva’s case, when the surprise throws doubt on an acquisition they already weren’t too keen about? Take Monday's after-hours announcement that generics CEO Siggi Olafsson was jumping ship, which made for a particularly unpleasant afternoon.
Investors sent Teva shares south on news that Olafsson was turning the reins over to Dipankar Bhattacharjee, current CEO of Teva’s European generics business. And analysts, who were similarly blindsided by the announcement, weren’t at all bewildered by that reaction.
They enumerated their own doubts in notes to shareholders late Monday and early Tuesday, taking issue in particular with the timing of Olafsson's departure, just a few months after Teva picked up Allergan's generics unit, Actavis, in a $40.5 billion deal.
Olafsson had been “a champion” of that buyout, Credit Suisse analyst Vamil Divan wrote, and to have him “now leave Teva just a few months after the deal closed and while the integration is in process" called its wisdom into question. His sudden departure "makes it more difficult for us to believe Teva will obtain as much value from the deal as they have previously stated publicly,” Divan said.
And while CEO Erez Vigodman told Bernstein analyst Ronny Gal the end-of-year switch will make it easier for the new management team to move forward, “it is not good news that a senior executive is departing when the job is not done,” Gal echoed, noting that “this is particularly true in this case.”
One reason? Teva isn’t just losing a senior leader in Olafsson; it’s losing a senior leader who’s uniquely qualified to oversee the integration of Allergan’s Actavis unit. Olafsson actually worked at Actavis from 2003 to 2014 and served as EVP of its global generics unit from 2010 to 2012.
That experience, coupled with his “recent history” at Teva, “should have reduced the risks tied to such a complex integration,” Wells Fargo analyst David Maris wrote to clients. “In our opinion, Mr. Olafsson's departure adds uncertainty to a business that has been underperforming throughout 2016.”
Gal is also “a bit concerned” that Olafsson’s exit may prompt other departures, and if “the team falls apart,” that event will “set the business adrift again." Pre-Olafsson, Teva “was unable to strike a direction or have dedicated leadership”—and the way Gal sees it, both of those accomplishments could now be in jeopardy.
The news only compounds an already dismal year for Teva as far as shareholders are concerned. Delays on the Allergan deal, generics price erosion, and the legal debacle with Mexican generics buy Rimsa have all hurt the generics business and Teva’s shares. The stock has declined 43.5% so far this year, versus an S&P 500 increase of about 8%, Maris pointed out.
Teva did reiterate its most recent financial guidance along with the announcement, though, and Gal doesn’t believe there’s a “significant” revision coming.
When it comes to 2017, “we expect a mediocre year, not a terrible one,” he wrote.